Inflation is the process of money losing value, in which prices for goods and services rise while purchasing power decreases.
Although moderate inflation is considered normal for a developing economy, its acceleration or uncontrolled growth causes serious harm to both people and businesses.
What Is Inflation in Simple Terms
Inflation is when, over time, the same amount of money buys fewer goods and services.
If today bread costs 50 rubles and in a year it costs 55 rubles, it means money has lost about 10% of its value in this category.
Inflation does not necessarily manifest equally across all goods: some items become more expensive faster, others slower, but on average, the general price level rises.
Types of Inflation
Economists distinguish several forms of inflation. Moderate inflation (1–3% per year) is often considered acceptable, as it stimulates economic activity.
But high inflation (over 10–15% per year) or hyperinflation (hundreds or thousands of percent) can destroy a country’s financial system.
| Type of Inflation | Price Growth Rate | Consequences |
|---|---|---|
| Moderate | 1–3% per year | Considered normal, does not damage the economy |
| High | 10–15% per year | Reduces confidence in money, slows investment |
| Hyperinflation | Hundreds or thousands % per year | Destroys the economy, devalues savings, leads to barter |
Why Inflation Is Dangerous
The main problem with inflation is the decline in purchasing power.
Salaries and incomes often do not grow as fast as prices, which leads to a decrease in living standards.
Savings in the national currency lose value, and accumulated money literally “melts away” before one’s eyes.
For businesses, inflation means rising costs: raw materials, supplies, transportation, and utilities become more expensive.
Companies are forced to raise prices to maintain profits, which in turn accelerates inflation even more.
This vicious cycle can lead to economic instability.
For the state, high inflation makes it harder to manage the budget.
Rising prices for public procurement, payments, and social programs increase the financial burden, while confidence in the national currency declines.
In extreme cases, this can lead to massive capital flight and devaluation.
Historical Examples
One of the most striking examples of hyperinflation was in Zimbabwe in the late 2000s,
when the annual inflation rate reached millions of percent, and banknotes with denominations in the trillions of dollars became commonplace.
As a result, the country effectively abandoned its national currency.
In the 1920s, Germany went through a similar crisis: prices doubled every few days, and people received wages twice a day to spend them before they lost value.
How Inflation Is Tackled
Central banks raise key interest rates to make loans more expensive and reduce excessive demand.
They may also limit money issuance, cut government spending, and control prices for essential goods.
However, such measures can slow down the economy, so fighting inflation always requires a balance between curbing prices and supporting growth.
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