What are the causes of inflation? Who can explain it to me? Thank you very much

Inflation generally refers to the phenomenon that the circulation of paper money exceeds the actual amount of money needed in commodity circulation, which leads to the devaluation of paper money and the rise of prices. Its essence is that the total social demand is greater than the total social supply.

Inflation in modern economics refers to the rise of the overall price level. Generalized inflation refers to the decline in the market value or purchasing power of money, while currency depreciation refers to the decline in the relative value between two economies. The former is used to describe the value of domestic currency, while the latter is used to describe the added value in the international market. The correlation between them is one of the disputes in economics.

Inflation refers to the phenomenon that prices keep rising in an all-round way in economic operation. The circulation of paper money exceeds the actual amount of money needed in circulation, which is one of the main reasons leading to inflation.

Various explanations

Different schools have different theories about the causes of inflation.

1. Interpretation of monetarism

The most widely known and direct theory of inflation is that inflation is caused by the fact that the money supply rate is higher than the economic scale growth. The theory advocates comparing the GDP deflator with the growth of money supply, and the central bank sets interest rates to maintain the amount of money. This view is different from the following Austrian school, which focuses on the quantity rather than the essence of money. Under the framework of monetarism, the concentration of money is the key point.

The theory of money quantity is simply that the total amount of money consumed by an economy depends on the total amount of existing money. Since then, the following formula has been said: P is the price level of general consumer goods, dc is the total demand of consumer goods, and sc is the total supply of consumer goods.

The idea behind the formula is that when the total supply of social consumer goods decreases relative to the total demand of social consumer goods, or when the total demand of social consumer goods increases relative to the total supply of social consumer goods, the prices of general consumer goods will increase accordingly. Based on the view that the total expenditure is mainly based on the existing monetary aggregate, economists calculate the total demand of consumer goods through the monetary aggregate. Therefore, they come to the conclusion that total expenditure and total demand for consumer goods increase with the increase of total money. Therefore, scholars who believe in the quantity theory of money also believe that the only reason for rising prices is economic growth (indicating that the total supply of consumer goods is increasing), and the central bank uses monetary policy to increase the existing total amount of money.

From this perspective, the most fundamental reason for inflation is that the supply of money exceeds the demand, so "inflation is a monetary phenomenon, which will definitely happen anywhere", Friedman said. This means that controlling inflation depends on monetary and financial restrictions. The government cannot make it too easy to borrow, nor can it lend too much. This view focuses on the central government budget deficit and interest rates, as well as economic productivity, that is, cost-driven inflation driven by production costs (total supply).

2. New Keynesian interpretation

(Neo-Keynesianism) According to Neo-Keynesianism, there are three main forms of inflation, which are part of what Robert Gordon called the "triangle model":

Demand-driven inflation-inflation occurs in high demand and low unemployment caused by GDP, also known as Phillips curve inflation.

Cost drives inflation-when oil prices suddenly rise, today's "supply shock inflation" will occur.

Intrinsic inflation-caused by reasonable expectations, usually related to the price/wage spiral. Workers want to keep raising wages, and their expenses are passed on to the cost and price of products, forming a vicious circle. What has happened in the internal inflation reaction is regarded as residual inflation, also known as "inertial inflation" or even "structural inflation".

3. Phillips curve inflation theory

(Phillips curve) (or demand side): Demand-driven theory mainly focuses on money supply: inflation can be related to economic supply (its potential output) through the amount of money in circulation. This is especially obvious when the government (possibly during a foreign war or civil war) prints too much money and causes a financial crisis, which sometimes leads to hyperinflation and makes prices soar (or double monthly prices).

Money supply also plays a major role in moderate inflation, but its importance is controversial. Monetarist economists believe that there is a strong connection; On the contrary, Keynesian economists emphasize the role of aggregate demand, and money supply is only the decisive factor of aggregate demand.

Here, I directly put forward the real reason for the formation of inflation (CPI): "The real reason for inflation is the requirement of capital for the average profit rate. In other words: the capital of the same unit requires equal return on investment, that is, there is no difference in capital. But in reality, capital can't be undifferentiated, which is often affected by the difficulty of capital entering the industry or industry. Therefore, the difficulty of capital entering an industry or industry leads to differentiated profit equalization. The objective difference between such industries or industries can reach a certain equilibrium under the condition of complete market. Once this equilibrium is broken, it will widen the profit ratio between industries or between industries, resulting in inflation. The difficulty of capital entering the industry or industry is influenced by interest rate, division of labor, industry productivity, investment scale, scientific and technological secrecy, human resources, brand, reputation, patents, standards, availability of raw materials and other factors.

Inflation is an inherent attribute of capitalist economy. In real life, the promotion of innovation, the fluctuation of market demand and the bargaining of labor force will make the profit rate of capital different, and then distort the price. The most important reason for this is that the promotion of science and technology makes investors feel that the investment is different and the profit rate should be different. Therefore, inflation usually occurs when interest rates fall and money supply is sufficient. At this time, those sufficient funds will quickly flow from industries with low profit margins to industries with high profit margins; That is, the more liquidity, the more urgent it is to average the profit rate of the industry. In the period of high interest rate, capital is in short supply, the average profit rate of each industry is not high, and the profit rate varies greatly among industries. However, if the relative profit rate of various industries is completely distorted, inflation may also occur under high interest rates. CPI index is an inaccurate concept, because it can't contain all commodities. In fact, goods not included are often more instructive. For example, innovative products enter the market with high prices and a small proportion of GDP; Other products that will be eliminated have lower prices and lower proportion in GDP, which are often ignored by statistical indicators.

Breaking the balance is often determined by the variability of cost, demand and innovation, which is not determined by enterprises in most cases, such as cost: raw materials and human capital are determined by the outside; The demand is determined by the customer. Demand fluctuates greatly during economic expansion and recession; Innovation often changes productivity, so innovation is determined by the relativity of innovation achievements between industries and is accidental. Performance factor

One of the effects of stable and small inflation is that it is difficult to renegotiate price cuts, especially wages and contracts. Therefore, if the price rises slowly, the relevant prices will be easier to adjust. There are many kinds of prices that will be "up for grabs" but will rise quietly. Therefore, the effect of zero inflation will affect other aspects by reducing prices, profits and the number of employees. Therefore, the executive departments of several companies regard moderate inflation as a "ship that lubricates business". Pursuing complete price stability will bring about devastating deflation (continuous price decline), which will lead to bankruptcy and economic recession (even economic depression).

The financial system regards the "potential risk" of inflation as the basic investment inducement higher than saving to accumulate wealth. In other words, inflation is the market description of the time value of money. In other words, because one yuan today is more valuable than one yuan next year, the future capital value will be deducted in economics. This view regards inflation as the uncertainty of future capital value.

For the lower classes, inflation usually increases the negative impact of discounting before economic activities. Inflation is usually caused by the government's policy of improving money supply. What the government can do about inflation is to tax stagnant funds. When inflation rises, the government raises the tax burden of stagnant funds to stimulate consumption and borrowing, which increases the flow speed of funds, strengthens inflation and forms a vicious circle. In extreme cases, hyperinflation will be formed.

International trade: If the domestic inflation rate is low, the reduction of the trade balance will destroy the fixed exchange rate.

Shoe sole cost: Because the value of cash will shrink when inflation occurs, people tend to hold less cash when inflation occurs. This word means that the actual cost will flow more to banks. The word "sole cost" is a joke, which means the cost of wearing soles because of walking to the bank. )

Menu cost: enterprises should make greater efforts to change product prices. This word means the cost of reprinting menus in restaurants.

Hyperinflation: If inflation is out of control, it will interfere with normal economic activities and damage the supply capacity.

In an economy, some sectors will be included in the inflation index, while others will not, and the inflation behavior will be redistributed from non-included sectors to included sectors. When the impact is small, this is a policy choice, and the liquidation priority and funds on hand are taxed instead of savings. If the impact exceeds a certain range, its effect will be distorted and become an individual's "investment in inflation", that is, the expectation of fueling inflation.

Because the above reasons for fighting inflation are higher than the small shock needed to fight their expected behavior and hold a lot of money, most central banks aim at visible but extremely low inflation in consideration of price stability.

influencing factor

In the case of inflation, it will definitely have an impact on social and economic life. If the social inflation rate is stable and people can fully expect it, then the inflation rate will have little impact on social and economic life. Because under this predictable inflation, various nominal variables (such as nominal wages, nominal interest rates, etc. ) can be adjusted according to the inflation rate, so that real variables (such as real wages, real interest rates, etc. ) remains the same. At this time, the only impact of inflation on social and economic life is that people will reduce the amount of cash they hold. However, inflation will affect social income distribution and economic activities if the inflation rate cannot be predicted completely. Because at this time, people can't accurately adjust various nominal variables according to the inflation rate and the economic behavior that should be taken.

(a) Between the debtor and the creditor, inflation will benefit the debtor and disadvantage the creditor.

Under normal circumstances, the nominal interest rate is determined according to the inflation rate at the time of signing, so when unexpected inflation occurs, the debt contract cannot be changed, thus reducing the real interest rate, benefiting the debtor and damaging the creditor. As a result, loans, especially long-term loans, are adversely affected, making creditors reluctant to issue loans. The reduction of loans will affect investment and eventually reduce investment.

(2) Between employers and workers, inflation will benefit employers but not workers.

This is because, under the unpredictable inflation, the wage growth rate cannot be quickly adjusted according to the inflation rate, so that even if the nominal wage remains unchanged or slightly increases, the real wage will fall. The decline in real wages will increase profits. The increase in profits is conducive to stimulating investment, which is why some economists advocate moderate inflation to stimulate economic development.

(3) Between the government and the public, inflation will benefit the government rather than the public.

Due to unpredictable inflation, nominal wages will always increase (although they may not be able to maintain the original real wage level). With the increase of nominal wages, the number of people who have reached the tax threshold has increased, and many people have entered a higher tax level, which has increased the government's tax revenue. However, the tax paid by the public has increased, while the real income has decreased. The tax that the government gets from this inflation is called "inflation tax". Some economists believe that this is actually the government's plunder of the public. The existence of this inflation tax is not conducive to the increase of savings, but also affects the enthusiasm of private and corporate investment.

Since the reform and opening up, China has experienced three serious inflation, which occurred in 1980, 1988 and 1994 respectively.

Measuring factor

The measurement of inflation is obtained by observing a large number of changes in labor income or commodity prices in an economy, usually based on data collected by the government, and trade unions and business magazines have also done such surveys. Price and labor income together constitute the price index, which is the benchmark for measuring the average price level of the whole commodity group. The inflation rate is an exponential increase. The price level measures the overall price, while inflation refers to the rise of the overall price.

There is no exact measure of inflation, because the inflation value depends on the price proportion of each specific item in the price index and the scope of the economic region to be measured. Common measurement methods include:

CLI (cost of living index) is the theoretical increase of personal cost of living, which is estimated by the consumer price index. Economists have different views on whether a specific CPI value should be estimated higher or lower than the cli value. This is because the CPI value is considered as "deviation". CLI can be adjusted by purchasing power parity (PPP) to reflect the huge gap between regional commodities and world prices.

Consumer price index (CPI) measures the price of goods purchased by "typical consumers". In many industrialized countries, the annual percentage change of the index is the most commonly used inflation curve report. This measurement method is usually used in salary negotiation because employees want their salary (nominal) to be equal to or higher than CPI. Sometimes, the labor contract will include the escalator fee, which means that the nominal salary will be automatically adjusted with the increase of CPI, and the timing of adjustment is usually lower than the actual inflation rate after inflation.

PPI) (Producer Price Index (PPI) measures the price of materials purchased by producers, which is different from CPI in terms of price subsidies, profits and tax burden, resulting in a gap between producers' income and consumers' efforts. When CPI rises, PPI rises, with typical delay. Although it has diversified combinations, it is generally believed that this delay makes it possible to roughly prepare for tomorrow's CPI inflation according to today's PPI inflation; There are very important differences between various words and contents.

The wholesale price index measures the wholesale price changes of selected commodities (especially sales tax), which is very similar to PPI.

Commodity price index measures the price changes of some commodities. If the gold standard is used, the commodity of choice is gold. The United States uses a multi-standard system, and its index includes gold and silver.

GDP deflator is a calculation based on GDP: the ratio of money used between nominal GDP and inflation-adjusted GDP (i.e. constant price GDP or real GDP) (see real and nominal economy). This is the most macroscopic measure of the price level. This index is also used to calculate the components of GDP, such as personal consumption expenditure. The United States Federal Reserve uses the core personal consumption deflator and other deflators as a reference for formulating "anti-inflation policies".

Price index of personal consumption expenditure. On February 17, 2000, FOMC (Federal Open Market Committee) announced in the semi-annual humphrey-hawkins report of Congress that it would change the main measure of inflation from cpi to the price index of individual consumption expenditure.

Because each measurement method is based on other measurement methods and combined with a fixed model, economists often argue whether there is a' deviation' between each measurement method and the inflation model. For example, the boskin Committee found that the CPI calculated by the Bureau of Statistics (bls) of the US Department of Labor was biased at 1995. After quantitative analysis of its deviation, they think that the inflation of that year was greatly exaggerated. The increase of scientific and technological innovation brought by hedonism theory and the substitution of cheap goods for expensive goods will reduce the growth rate of CPI-U. For example, in the early 1980 s, uninhabited rental units were not included in the rental income of CPI-U and CPI-W. After adding this part, the inflation rate is actually extremely underestimated, so this change is added to the CPI calculation of 1982.

The current debate is whether to include the adjustment of happiness theory, including that when high-priced areas are out of reach, people will move to cheaper areas. Some people think that the purchase part of the index greatly underestimates the impact of daily living expenses on housing prices, and also greatly underestimates the importance of medical expenses in the daily expenses of retirees.

Contrary concept

disinflation

1, difference

⑴ The meaning and essence are different: Inflation refers to the economic phenomenon that the circulation of paper money exceeds the quantity needed for circulation, which leads to the devaluation of paper money and the rise of prices. Its essence is that the total social demand is greater than the total social supply.

Deflation is an economic phenomenon relative to inflation. It refers to an economic phenomenon in which the overall price level continues to decline for a long time and the currency continues to appreciate during the period of relative economic contraction. Its essence is that the total social demand is less than the total social supply.

⑵ Different performance: The most direct performance of inflation is the devaluation of paper money, rising prices and declining purchasing power. Deflation is often accompanied by declining production, shrinking market, declining profit rate of enterprises, decreasing production investment, increasing unemployment, decreasing income and weak economic growth. Mainly manifested in the low price, the price of most goods and services fell.

⑶ Different causes: The main reason for inflation is that the total social demand is greater than the total social supply, and the amount of money in circulation exceeds the amount of money actually needed in circulation. The main reasons for deflation are that the total social demand is less than the total social supply, the long-term industrial structure is unreasonable, the buyer's market is formed, and it is difficult to export.

(4) Different harmfulness: Inflation directly devalues paper money. If the income of residents remains unchanged, the living standard will decline, which will lead to the disorder of social and economic life and is not conducive to economic development. However, in a certain period of time, moderate inflation can stimulate consumption, expand domestic demand and promote economic development. Deflation leads to price drop, which is beneficial to residents' life, but it will seriously affect investors' confidence and residents' consumption psychology in the long run, leading to vicious price competition, which is unfavorable to long-term economic development and people's long-term interests.

5. Different control measures: The most fundamental measure to control inflation is to develop production, increase effective supply, and at the same time take measures such as controlling money supply, implementing moderately tight monetary policy and fiscal policy of living within our means. To control deflation, we should adjust and optimize the industrial structure, comprehensively use investment, consumption, export and other measures to stimulate economic growth, implement a proactive fiscal policy, a prudent monetary policy and a correct consumption policy, and adhere to the policy of expanding domestic demand.

Step 2 contact

(1) Both of them are caused by the imbalance between total social demand and total social supply, that is, the imbalance between the amount of money actually needed in circulation and the amount of circulation.

(2) Both of them will distort the price signal and affect the normal economic life and social and economic order, and effective measures must be taken to curb them.

Expression form

Typical performance-price rise

Generally speaking, inflation will inevitably lead to price increases, but it cannot be said that all price increases are inflation. There are many factors that affect the price increase.

(1) The circulation of paper money must be limited to the number needed in circulation. If too much paper money is issued, the price will go up.

(2) The price of commodities is directly proportional to the value of commodities. With the increase of commodity value, the price of commodity will also rise.

(3) The price is affected by the relationship between supply and demand. When the supply of goods is in short supply, the price will rise.

(4) Policy adjustment and rationalizing the price relationship will lead to an increase.

⑤ Poor commodity circulation, poor market management and arbitrary charges and fines will also cause commodity prices to rise. It can be seen that only when the excessive issuance of paper money leads to rising prices, rising prices are inflation.