Inflation: why prices are rising and who can contain them - GovtVacancy.Net

Inflation: why prices are rising and who can contain them - GovtVacancy.Net
Posted on 23-10-2022

Inflation: why prices are rising and who can contain them

If prices are constantly rising, it means that there is inflation in the country. What does inflation depend on and what is being done so that prices do not rise?

What is inflation?

Inflation is a constant increase in the general level of prices of goods and services. At the same time, the price of some goods may increase markedly, others may become cheaper, and others may not change in price at all.

Basically, the prices of goods and services depend on the supply and demand in the market, and some prices are regulated by the state. For example, if farmers get a good crop of vegetables, the prices of tomatoes and potatoes will go down.

How is inflation measured?

Inflation is measured in the same way as in most countries in the world. They take the so-called consumer basket: a set of products, goods, and services that the average person or family buys regularly. Includes about 500 goods and services, eg food, clothing, utilities, appliances, and cars.

At the same time, one must understand that someone never eats meat and does not drive a car. And someone, on the contrary, cannot live without meat and changes cars every year. The consumption basket reflects the average consumption of all the country's inhabitants.

Why is it said that inflation goes down when prices go up?

Inflation is always an increase in prices. When inflation is low, prices go up very slowly, but they do go up. When they say that inflation is going down, they mean that the consumer basket is getting more expensive more slowly than in previous years.

How is inflation?

° Low - up to 6% per year. Such inflation is comfortable for both consumers and businessmen. And at the same time, it allows the economy to develop. It is at this level that most countries try to maintain inflation.

° Moderate: 6 to 10% per year. It is dangerous because it can get out of control and turn into high inflation.

° High (gallop) - from 10 to 100% per year. It creates instability in the market, and people and companies cannot plan their futures.

° Hyperinflation: prices increase by hundreds and thousands of percent, in especially difficult cases, people reject money and switch to barter. Typically, hyperinflation occurs during severe crises and wars.

Why is inflation rising?

Inflation can increase for many reasons:

° Increase in demand. It happens that people suddenly start buying more of certain products. For example, when mobile phones became affordable, everyone wanted to use cellular communications. Cellular operators did not have time to immediately adapt to the high demand: there were not enough free towers and frequencies. Therefore, the prices of mobile communications were very high. Any shortage causes a rapid increase in prices. But when carriers got the extra capacity, prices started to come down.

° Shorten the offer. A shortage can also arise for another reason: if the demand remains the same, but there are fewer goods and services. This can happen due to bad harvests, restrictions on the importation of foreign products, and the actions of a monopolist in some markets. This also accelerates the rise in prices.

° Weakening of the national currency. If the exchange rate of foreign currencies rises, imported goods automatically become more expensive. This also leads to an increase in inflation.


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