Inflation - the depreciation of money - has become a part of everyday life, and its consequences are felt by every citizen of the country who has not lost the skills of analysis. But this economic phenomenon, although it reduces the real weight of money wallets, is not always negative, as is the case with creeping inflation.
Varieties of inflation
An economic factor such as inflation is characterized by the average annual rate of price growth. So, in the case when it is less than 10%, inflation is considered moderate, or creeping. At this rate of growth, a slight increase in prices is an incentive for buyers to invest in a product that will become slightly more expensive tomorrow. Consumer demand stimulates the development of production and expands investments in it. Hyperinflation is one that starts from 10 to 50% per year. This is an alarming signal that the country's economy is on the verge of collapse. With inflation, which is called galloping, the rate of price growth exceeds 50%, and its maximum values can reach astronomical values. This situation characterizes the complete collapse of the economy, which usually happens when a crisis occurs in the country or wars are waged.
Economic processes with creeping inflation
Moderate inflation is a constant depreciation of money and a decrease in purchasing power, which is typical for most developed countries. Since it is an incentive for the population to invest money, the goal of the economic policy of such states is not to reduce it to zero, but to maintain it within 3-5%.
At the same time, inflationary processes can be both open and artificially suppressed. In the first case, there is no state control over prices, inflation is due to the natural excess of demand over supply. In the second, when the state undertakes to control prices, the real rate of inflation growth can be much higher than officially declared, and it can no longer always be considered moderate.
At the same time, open inflation does not contradict the laws of the market and does not destroy its mechanisms, attracting investments to expand production and satisfy consumer demand. The population, guided by inflationary expectations, independently determines what part of the money should be spent on the purchase of goods, and what part should remain in the form of deposits and savings. By increasing spending, consumers can create a rush of demand that is not supported by a real need for a particular product, which in some cases can become a permanent incentive for rising prices and swinging the inflation pendulum. To prevent this from happening, it is necessary that the state has sufficient production capacity and labor reserves to meet the increasing demand and stop the growth of inflation.
