Lạm phát là gì? Khái niệm, phân loại và nguyên nhân gây ra lạm phát

Inflation is an extremely common term not only in the economic field but also in social life. It can be said that inflation exists right in life and affects everyone. But do you have a deep understanding of What is the nature of inflation? How many types of inflation are there? When does inflation happen and why does it happen… All will be covered by Dissertation 99 in this article.

What is inflation?

What is the concept of inflation?

Inflation is considered an inherent category of the market economy. This concept appears when the requirements of the laws of commodity economics are not respected, especially the laws of money circulation. Where there is still production of goods and the existence of commodity-money relations, there will exist the risk of inflation, and when the law of money circulation is violated, inflation will appear.

In simple terms, inflation (English: Inflation) is the phenomenon of paper money depreciating causing the prices of goods expressed in depreciated currency to increase. Inflation has the following characteristics: Paper money increases beyond the necessary needs of the circulation of goods, leading to depreciation of paper money, continuous increase in commodity prices and instability in economic life. of a country or the whole world.

What is inflation?

Inflation example

From the concept of what is inflation, we can deduce the most important feature of inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. To understand better, let’s take a look at the following example:

One of the simplest example of inflation in fact can be seen in the price of milk. In 1913, a gallon of milk cost about 36 cents a gallon. One hundred years later, specifically in 2013, a gallon of milk cost $3.53 – almost ten times more. This increase is not due to milk becoming scarcer, or more expensive to produce. Instead, this price level reflects the gradual decrease in the value of money as a result of inflation.

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Inflation classification

In fact, the classification of inflation is usually done based on two criteria that are quantitative and qualitative.

Classification of inflation based on quantification

Quantitatively, based on the fluctuations of the price index, inflation is divided into 3 types:

Classification of inflation based on quantification

• Moderate inflation: also known as single-digit inflation with an inflation rate of less than 10% a year. This makes the price relatively volatile. During this period, the economy still operates normally, the life of workers is stable, which is reflected in the following situations: product prices increase slowly, deposit interest rates are not high, and there is no situation. the state of buying, selling or hoarding goods in large quantities, etc. Inflationary while creating peace of mind for workers who only rely on income.
• Hyperinflation: This situation occurs when prices increase rapidly at the rate of 2 or 3 figures a year causing the general price to increase rapidly, causing large economic fluctuations. At this time, people increase hoarding of goods, gold and silver, real estate, do not lend money at normal interest rates. When inflation is not controlled, it will cause great fluctuations in the economy.
• HyperinflationHyperinflation occurs when inflation increases at a high rate that far exceeds hyperinflation, leading to an increase in the speed of money circulation, an unstable increase in prices, and rapid depreciation of the currency. This causes market factors to be distorted and business activities to fall into disarray. In reality, hyperinflation is very rare.

Classification of inflation based on qualitative

Based on the qualitative, inflation is divided into two groups:

Classification of inflation based on qualitative

• Equilibrium and unbalanced inflation:

Equilibrium inflation: Increases in proportion to the actual income of workers, increases in accordance with the production activities of each enterprise. Therefore, this situation does not affect the daily life of workers and the economy in general.

Unbalanced inflation: The increase does not correspond to the income of workers. In fact, this often happens.

• Predictable inflation and abnormal inflation:

Predictable Inflation: An inflation that occurs annually over a relatively long period with a stable inflation rate. This type of inflation can predict its rate in subsequent years. Psychologically, people are used to this situation and it does not affect their lives and economy much.

Irregular inflation: a sudden spike that may not have occurred before. This type of inflation affects people’s psychology and life because they have not yet adapted. This causes fluctuations in the economy and reduces people’s trust in the government.

Besides that, history of inflation also pointed out that, inflation in developing countries often takes place over a long period of time, so its nature and consequences are more complicated. Economists have divided inflation in developing countries into three categories, including: Chronic inflation lasting more than 3 years with an inflation rate of less than 50% a year; severe inflation usually lasts more than 3 years with an inflation rate above 50%; hyperinflation lasts for more than one year with an inflation rate above 200% a year.

What are the causes of inflation?

Inflation is a persistent increase in the general price level. Some famous theories in the world have pointed out the main causes of inflation as follows:

According to the theory of moneyInflation is the result of an excess of the money supply. Keynesian theory Inflation occurs due to excess demand for goods and services in the economy (demand-pull). Still follow cost push theory, inflation is caused by an increase in the cost of production, also known as cost-push. In fact, inflation is the result of all three of the above causes, each of which plays a different role at different times. As follows:

#1 Money Supply

The ever-changing money supply affects the inflation rate, on which the central bank exerts a direct influence. In the fight against inflationaryCentral banks always reduce the money supply by printing more money (when interest rates are low and business conditions are good) or commercial banks increase credit. Both of these situations lead to more money being available, which in the medium to long term leads to increased demand for goods and services. When supply does not increase in proportion to demand, the excess demand is offset by an increase in prices. However, prices cannot increase immediately but will increase after 2-3 years, printing money to subsidize public spending will cause severe inflation.

#2 Keynesian inflation (demand-pull inflation)

Demand-pull inflation chart – Keynesian chart

Besides the cause of increase in money supply, increase in consumption, public expenditure and increase in population are the non-monetary multipliers that lead to an increase in demand. Pressure inflationary will increase after 1 to 3 years, when the demand for goods exceeds the supply but the production scale is not expanded or the application of machinery, technology is limited or production factors do not meet the demand. get an increase in demand. This imbalance will be filled with prices, from which inflation due to increased demand will emerge.

#3 Cost-push inflation

Cost-push inflation, also known as stagnant inflation, occurs when production costs such as labor, machinery, etc. increase, causing businesses to increase product prices. This situation occurs only during periods of economic growth when consumers are willing to pay higher than usual prices for products.

Cost-push inflation chart

What are the effects of inflation on the economy?

As mentioned above, inflation is divided into different categories and they have different degrees of impact on society as a whole. From a correlation perspective, inflation is considered a concern of the whole society and it affects all aspects of life, including:

For the manufacturing sector

For manufacturers, the high inflation rate causes input and output prices to fluctuate constantly, creating artificial stability in the production process. The devaluation of the currency leads to the invalidation of business accounting activities. Production and business efficiency in some enterprises will be changed, causing economic fluctuations. In businesses with a profit margin lower than the inflation rate, there is a high risk of bankruptcy.

For the field of circulation

Inflation increases the demand for speculation and leads to scarcity of goods. Entrepreneurs focus on investing capital in the field of circulation. When inflationary If it becomes difficult to predict, capital investment in the manufacturing sector will face high risks. Because there are many people involved in the field of circulation, it becomes more and more chaotic, the money in the hands of those who have just sold it is quickly invested in circulation, causing the speed of money circulation to skyrocket. inflation continued to increase.

For the field of money, credit

Inflation caused credit, trade and banking relations to narrow because the amount of money deposited in the bank decreased significantly. When the amount of deposits decreases, there will be a situation that does not meet the needs of borrowers along with the devaluation of the currency and the adjustment of deposit interest rates that are not suitable for those with idle cash. On the borrower’s side, they are a big beneficiary because the currency depreciates quickly, making the bank’s operations no longer smooth.

Impact of inflation on the economy

For the economic and financial policy of the state

Inflation causes large fluctuations in the prices and output of goods. When inflation occurs, information in the society is destroyed due to price fluctuations, causing the market to become confused. Inflationary It also causes the state to lack capital, not being able to provide money for social welfare benefits, etc. The areas that are intended to be invested by the government and still supported by the government are also narrowed or delayed. When the government’s budget Water deficit will make the goals of improving and enhancing social life will not have the conditions to implement as previously set out.

Measures to control inflation

Inflation causes a lot of instability in people’s lives and seriously affects the economy, so it is necessary to take practical measures to control this situation, specifically:

What are the immediate measures to control inflation?

• Implement a policy of restriction, also known as a currency freeze: that is, the government needs to reduce the amount of paper money in the economy by stopping the issuance and circulation of money. When inflation rate increased high, the central bank must immediately take measures to increase the money supply such as stopping discounting and rediscounting transactions with credit institutions, buying short-term securities in the money market, does not issue money to offset budget deficit, etc.
• Reform the budget revenue and expenditure system: reduce unnecessary expenditures in the economy and rebalance the budget, cut spending as much as possible.
• Overcome the issue of money to offset budget overspending.
• Stabilizing the external purchasing power and external purchasing power of the currency in order to gradually strengthen people’s confidence such as implementing free trade, reducing tariffs, etc.
• Monetary reform measures: This is the last resort when the inflation rate is so high that the above measures do not bring the desired effect such as changing one monetary regime with another, issuing money new currency…

What is the measure to control inflation in the long run?

• Develop appropriate economic development strategies, have effective macro management policies through financial and monetary policies.
• Consolidate and promote the role of macro-regulatory and management agencies such as the central bank, the Ministry of Finance, etc.

Above is all the general knowledge related to What is inflation?. Thesis 99 hopes that the sharing in the article will help readers understand this concept more deeply and apply it in life as well as in learning.