Radchenko V.

Zabelina A.

PhD Zhukova O. S.

PhD Petrachkova O. L.

Donetsk State University of Management

SEVERAL TYPES OF INFLATION

There are several ways of defining inflation. In some context it refers to a steady increase in the supply of money. In others it is seen as a situation where demand persistently exceeds supply. It seems best, however, to define inflation in terms of its basic symptom-rising prices. Inflation is a situation in which the general price level is persistently moving upwards.

In the extreme form of inflation, prices rise at a phenomenal rate and terms such as hyperinflation, runaway inflation, or galloping inflation have been used to explain the situation. Germany experienced this kind of inflation in 1923 and by the and of that year prices where one million times greater than their pre-war level. Towards the end of 1923, paper money was losing half of more of its value one hour, and wages were fixed and paid daily.

Under conditions of hyperinflation people lose confidence in the currency s ability to carry out its functions. It becomes unacceptable as a medium of exchange and other commodities, such as cigarettes, are used as money. When things have become as bad as this the only possible course of action is to withdrew the currency and issue new monetary units. So great was the loss of confidence in Hungary that the new currency had to be given a new name, the Forint replacing the Pengo.

Another type of inflation is described as suppressed inflation. This refers to a situation where demand exceeds supply, but the effect on prices is minimized by the use of such devises as price controls and rationing. We should note that price controls and rationing, We should note that price controls do not deal with the causes of inflation, they merely attempt to suppress the symptoms. The excess demand still exist and it will tend to show itself in the form of waiting lists, queues, and almost inevitably, in the form of black markets.

The most common type of inflation is that experienced since the war in Britain and other developed countries. This is creeping inflation where the general price level rises at an annual rate between 1 and 6 percent.

The causes of inflation are usually classified as demand pull or cost-push.

Demand inflation. Demand inflation may be defined as a situation where aggregate demand persistently exceeds aggregate supply at current prices so that prices are being ‘pulled’ upwards. This type of inflation is usually associated with conditions of full employment. If there are unemployed resources available, an increase in demand can be not by bringing these resources into employment.

Supply will increase and the increase in demand will have little or no effect on the general price lever. If the total demand for goods and services continues to increase, however, a full employment situation will eventually be reached and no further increases in output are possible (i.e. in the short run). Once the nation’s resources are fully employed, an increase in demand must lead to an upward movement of prices.

A situation of excess demand may arise when a country is trying to achieve an export surplus, in order, perhaps, to pay off some overseas debt. Exports are inflationary because they generate income at home but reduce home supplies. Imports, of course, can make good this deficiency of home supple, but if exports are greater than imports there will be excess demand in the home market unless taxes and savings are increased to absorb the excess purchasing power.

Demand inflation might develop when, with full employment, a country tries to increase its rate of economic growth. In order to increase the rate of capital accumulation, resources will have to be transferred from the production of consumer goods to the production of capital goods. Incomes will not fall since the factors of production are still fully employed, but the supply of the things on which these incomes may be sent will fall. Unless taxation and/or saving increase there will be excess demand and rising prices.

Literature

1. Kieso and Weygandt. Intermediate Accounting. John Wiley &Sons, 1989. ISBN: 0-471-63098-5.

2. The development of SEC Accounting. Edited by G.J. Previts. Addisson-Wesley, 1981. ISBN: 0-201-05784-0.

3. Jan R. Williams. Miller GAAP Guide. Harcourt Brace Professional Publishing, 1996. ISBN: 0-15-601913-2.