When does inflation become extremely dangerous!


Inflation has become a problem of the world economy since the 20s and 30s of the last century, a chronic puzzle for many countries. What is inflation and which phase is extremely dangerous for the economy?

Let’s start by explaining the definition first. Inflation implies a decrease in the purchasing capability of money, which equals the depreciation of money. To explain with a practical and understandable example, if yesterday we bought a certain list of product basket for 20 GEL, today a basket containing the same product needs 23 GEL. It turns out that the purchasing capability of money has decreased, we can no longer buy the same product for the same amount. That is why the negative impact of inflation is most visible and tangible in the social sphere. According to the general assessment, inflation is a key feature of macroeconomic instability, and its consequences are deplorable and severe for the economy.

In the socio-economic context, the negative effects of inflation are reflected in the depreciation of incomes and savings, significant increases in prices for consumer products, and so on.

What causes such fluctuations in the economy? What causes inflation?

These are the questions to which the answer is the starting point for solving such a universal problem.

The causes and provocations of inflation are as follows: disproportion in government revenues and expenditures, the militarization of the economy, lack of free market and competition, imported inflation, and inflation expectations.

Inflation has several subtypes, species that differ in the rate of price growth, namely: creeping, global, and hyperinflation.

The most dangerous of these is the hyperinflation phase, when prices rise at a colossal rate and the market is volatile, making it impossible to predict events. The negative developments are mostly reflected in the middle, poor, and fixed income population of the society. Their quality of life and access to vital products is significantly declining.

When the inflation rate is a threat to the economy, there is a need to develop anti-inflation policies, which are implemented by the government and the National Bank with short-term and long-term measures.

Editor’s blog

source: https://nbg.gov.ge/page/, https://www.investopedia.com/, https://www.financialexpress.com/