Concept and types of inflation. The economic consequences of inflation.

Inflation is defined as a continued rise in the average level of prices. Now we will concentrate first on the effects and then the causes of inflation.

Demand-pull inflation is a rise in the average price level caused by excess demand at full employment. The excess demand increases the average level of prices, which is inflation.

Cost-push inflation is a rise in the average price level due to an increase in production costs. Cost-push originates from the supply side of the economy. Monopoly power significantly contributes to cost-push inflation. The monopoly power of labor unions may result in wage increases that inflate the cost of production. The power of monopoly business permits these costs to be passed on to the consumer in the form of higher prices. Once prices go up, labor realizes that its recent wage gain has been eroded, and it again raises wages. The increase in wages again causes prices to rise, and the wage-price spiral repeats itself.

Supply-shock inflation results from infrequent drastic changes in the production cost of fundamental products.

Once people start expecting prices to rise, and act upon it by buying more, prices will rise, and expectations inflation is the result. Psychology plays an important role in a social science.

Stagflation The combination of falling output and rising prices.

Deflation A decrease in the price level from one period to the next.

Инфляция в некоторых странах в 2009-2012гг.

Уровень инфляции в Казахстане за 1991 – 2012 гг.