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[QUOTE="Vlad RF, post: 210765, member: 61796"] [B][SIZE=5]What Is Inflation: Reasons and Consequences[/SIZE][/B] [I]Author: Victor Gryazin[/I] [CENTER][IMG]https://blog.roboforex.com/wp-content/uploads/2022/06/22-1536x662.jpg[/IMG] [B]Dear Clients and Partners,[/B][/CENTER] What is inflation? What are the reasons for it? How does it influence the economy, and what methods are there to control it? In this article, we will try to answer these questions. Let us get started. [SIZE=5]What is inflation[/SIZE] Inflation is the index of general growth of prices for goods and services. When prices grow, a unit of the national currency can buy fewer goods and services. Hence, inflation facilitates a decrease in the purchasing power of money. The opposite of inflation is deflation, which is a stable decline of the prices for goods and services. In other words, inflation is the speed (expressed in pecent) of the growth of general price levels for goods and services. Inflation levels demonstrate how high prices have grown in the country over a certain timeframe. Inflation leads to an increase in the prices for various assets over time. The higher reaches inflation, the more prices grow. [IMG]https://blog.roboforex.com/wp-content/uploads/2022/06/inflation-1.png[/IMG] [SIZE=5]How inflation influences economy[/SIZE] Inflation can be either a negative or positive phenomenon depending on the speed of its growth and other events in the economy. Excessive inflation is considered bad for the economy, yet no inflation at all is also a negative event. Most economists consider stable inflation of 2% a year optimum. Here is how inflation influences the economy depending on its speed: [LIST] [*][B]Moderate inflation[/B] is under 10% a year, and thanks to being predictable and controllable it supports sustained growth of the economy and does not lead to abrupt depreciation of the national currency. [*][B]Galloping inflation[/B] is between 10% and 100% a year. It has a negative influence over the country’s economy. Producers of goods and services prefer binding prices to some stable and convertible global currency. People try to save their money by investing it in various material goods: cars, household appliances, real estate – thus heating up prices additionally. [*][B]Hyperinflation [/B]is especially high, above 100% a year. Quite often such inflation can be a consequence of acute political crises or wars that demand decisive actions from the government. This can totally destroy the turnover of goods and cash and the whole financial system of the country due to the loss of trust in money. [/LIST] [IMG]https://blog.roboforex.com/wp-content/uploads/2022/06/Inflation-2-768x768.jpg[/IMG] [B]Methods of controlling inflation[/B] The financial regulator of the country bears the responsibility of fighting back inflation. This is done by certain measures of the credit and monetary policy. Here are the main methods by which Central Banks can influence inflation. [LIST] [*][B]Deterrent credit and monetary policy[/B] is nowadays one of the most popular ways of controlling inflation. The goal of such a policy is to decrease money supply in the economy by increasing the interest rate. This helps to cool down the economy, making credits pricier and thus decreasing spendings of consumers and companies. The CB can sell securities in the open market, increse reserving norms for commercial banks, and apply other measures of selective credit control. Increases in the interest rate have a bad influence on the stock market but facilitates growth of the national currency. [*][B]Financial measures.[/B] They include increased control of state expenses, private expenses, private and state investments. Tax regulations also belong here: the tax system must provide stimulation to those who save, invest, or produce more. [*][B]Price control.[/B] Another efficient measure of conquering inflation is increasing production and controlling prices for goods from the basic basket, such as food, clothes, fuel, etc. [/LIST] [SIZE=5]Closing thoughts[/SIZE] Inflation levels show how high prices have grown for certain goods and services over s certain timeframe. To assess inflation, several indices are used (CPI, PPI, WPI). Moderate inflation enhances economic growth, while high inflation have a negative influence on the economy. Control over inflation is carried out by the Central Bank; the main controlling measure is toughening of credit and monetary policy. [URL=https://blog.roboforex.com/blog/2022/06/30/what-is-inflation-reasons-and-consequences/?utm_source=earnforex.com&utm_medium=cpc&utm_campaign=rf_en_external_forums_blog&utm_content=text&a=ohrb]Read more at R Blog - RoboForex[/URL] [B]Sincerely, RoboForex team[/B] [/QUOTE]
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