Effects of inflation

Inflation can have an unpredictable pace. In the face of unexpected, rapid price increases, some market actors find a profit, while others bear losses.

The consequences of inflation are manifested, first of all, in the redistribution of wealth and income. Creditors are in a less favorable position than debtors. The latter grow rich at the expense of the former. For example, payment of a loan for erecting a house, in accordance with the agreement, is carried out at fixed prices. At the same time, an amendment to contracts of this kind for the depreciation of cash is not being done. In this regard, in a period of instability, lending at a fixed rate is extremely unprofitable.

The consequences of inflation are also reflected in the balance of prices. So, the market value of goods differs from the prices of state enterprises. In the regulated (public) sector, prices for production costs and products (goods) are revised longer and less frequently than prices in the private sector of the economy. With inflation, state-owned enterprises are forced to justify each increase in the value of goods and get permission from all the organizations that stand higher. It should be noted that, given a regular, abrupt, unexpected increase in the overall price index, it is technically extremely difficult to carry out these actions. As a result, the imbalance between the public and private sectors is developing, while the state is losing the ability to influence the market. These consequences of inflation are considered by experts to be the most dangerous.

In conditions of a spasmodic increase in prices, the state begins to covertly withdraw money from the population with the help of taxes. At the same time, progressive taxation automatically automatically enumerates various types of business and social groups into the more affluent. Thus, the government gets the opportunity to collect an increasing amount without adopting new rates and tax laws. In this regard, the attitude of the population and entrepreneurs towards the government is deteriorating.

The consequences of inflation are manifested in the accelerated materialization of finance. Corporations and citizens are eager to invest their depreciating assets as soon as possible in material objects. Enterprises are beginning to develop plans to increase the use of monetary resources. With a simple change in the relative scale of the cost, excessive, too fast, and insufficiently thoughtful expenditure of real economic reserves is stimulated. As a result, the economic sector is overstrained. In addition, inter-industry proportionality is violated. These economic consequences of inflation clearly manifested in Russia, when the panic investment in construction began, the population began buying up furniture and gold. Enterprises began to accumulate "in reserve" of productive means, in connection with the probability of growth in the wholesale cost of materials.

In the conditions of growth of the general level of prices, the real monetary interest rate decreases by the value of the annual inflation rate.

Unpredictable jumps increase disproportion in the economy. Inflation contributes to the disorganization of economic relations, provokes a crisis of public finances. The social consequences of inflation are reflected, mainly, in the reduction of real incomes of citizens, depreciation of the savings of the population. Along with this, there is a deterioration in the quality of life of representatives of social groups with "hard" incomes (pensioners, students, employees and other citizens whose income is generated from the state budget).

It is believed that inflation is one of the most dangerous and painful phenomena today. In addition to the negative impact on the financial and economic sector, this process undermines the ability to regulate economic activities, negating all efforts to implement structural changes.