consequences and costs of inflation have both positive and negative sides.The positive is that the relatively high growth rate of the prices of all kinds of products demonstrate the rapid development of the economy after a long time of stagnation.The negative effects are primarily associated with the winding down of the domestic market and the risk of depletion of the population.However, with a well-established economy, stable social and political situation is extremely quiet low / high inflation - is "evil" factor negatively affecting their status as a domestic producer and investor.
economic costs of inflation :
- The growth of transaction costs.Inflation itself is a special form of tax money.The faster prices are creeping up, the higher the level of buying securities or currencies.Banks also have their share at the expense of new deposits.However, if the instability in the domestic market - the usual case, the ordinary citizens save only stable foreign currency.A classic example - domestic dollar bankohranilischa 1990s.Those who are richer or disposal bonds, of course, bet on speculative securities transactions.In any case, such a "method" also has the right to exist, but only in conditions of relative stability.
- Manufacturers are constantly updating their own price lists, and in parallel, suffering heavy losses in the printing industry have to come up with new marketing moves to stimulate sales.What is also clear: the costs of inflation led to the fact that people lose their money, but because the surviving redirect funds for the purchase of everyday goods.Long-term purchase postponed for a while.
- Microeconomic cost inflation.The fact is that in a period of high inflation, small companies are often not very profitable to change their price demands, and the more updated product line.They try to minimize additional resources, even get a smaller profit, but in doing so to stay afloat.However, they risk losing the volatile market: stronger players will have the resources and the ability to update products and advertising campaigns.As a result, the costs of inflation led to a decrease in the share of small business in the economy and create some preconditions for the consolidation of players, increasing the facts unfriendly cooperation, and in some cases, and the monopolization of markets.
- Costs of inflation on deposits and other bank deposits.It is clear that as commercial banks are not interested in the structure of their own loss.Moreover, in any case, they make a profit.In this case, the increase in inflation leads to a qualitative reduction in interest rates, investors have de jure receive a significant interest, and de facto, taking into account the inflation factor, less profit than in the stable economy.
- Costs of inflation tax.Here, too, everything is simple: the higher the inflation rate, and the higher tax costs.Especially in social congested economies: reduction of taxation may even provoke a rise in social instability.
