Modern inflation is a complex socioeconomic phenomenon and has many causes. Inflation is caused by structural deficits in various areas of the market economy - imbalances between demand and supply, accumulation and consumption, government revenues and expenditures.
Inflation processes today are determined not only by a multitude of monetary, but also by non-monetary factors, which are in a complex interaction. Often the causes of inflation are intertwined with the consequences, that is, the socioeconomic consequences of inflation provoke further price increases. A distinction is made between internal and external causes (or factors) of inflation.
Internal causes include the following:
- deficit of the state budget, if it is covered by state loans and additional emission of money. It is based on high public expenditure. A special role here is played by military expenditures, which significantly distort the structure of social reproduction. Military allocations create additional solvent demand for persons employed in military industries or in military service, which leads to an increase in the money supply without appropriate commodity coverage. High social expenditures, which do not correspond to the capabilities of the national economy, also contribute to the inflationary growth of prices;
- Monopolization of the economy and arbitrary volitional pricing. Most industries in the modern market economy are represented by oligopolistic structures - they are dominated by several large firms. Pricing competition in such industries is replaced by agreements and with reservations, the practice of "price leadership", in which firms are guided by prices set by the leader. These practices create potential conditions for price hikes for all;
- Inflationary expectations of the population that force people to buy goods beyond their current needs. During inflation, people plan their behavior in anticipation of further price increases. In an attempt to avoid losses from expected inflation, the population seeks to get rid of "extra" money. The result of this behavior demand stimulates price increases. In a highly inflationary environment, trade unions are actively seeking to raise nominal wages, thereby boosting current demand and spiraling the wage-price spiral. Manufacturers, on the other hand, assume that raw materials and components will continue to rise in price, so they should set higher and higher prices for their products;
- Credit expansion - increasing the scale of bank lending in excess of the needs of the national economy. Credit expansion is developing in the context of the state policy of "cheap money" - a system of measures to facilitate the access of entrepreneurs to credit resources (reduction of the real interest rate, reservation rates, etc.);
- peculiarities of the current stage of development of public production: reduction of serial production, frequent change of models, reduction of depreciation terms, growth of expenses for advanced training of labor force create additional incentives for price increase.
External factors of inflation are conditioned by the internationalization of economic life. The most important of them are the following:
- Imported" inflation, which is caused by the impact of rising prices on external markets to domestic commodity prices. Particularly significant inflationary potential is associated with an increase in world prices for energy and raw materials;
- depreciation of the national currency against the currencies of other countries. This entails an increase in prices for imported goods on the domestic market. In addition, the need to convert the national currency to support imports requires additional money emission;
- Global economic crises, which have led to significant shifts in the world economy. The demand in the world market is decreasing, the price structure is changing. In the conditions of global financial instability, the balance of payments of many countries is deteriorating, national currencies are falling, and external debt is increasing. All this stimulates inflationary processes in the economies of a number of countries.