Inflation in Russia

Inflation is when there in an increase in price of goods and service, causing there to be a fall in the currency as lesser goods and services can be brought by each unit of currency due to the rise in price. Rapid economic growth will often lead to inflation. When the economy is rapidly growing, a company will need to employ more employees, resulting to a fall in unemployment rate. As unemployment rate falls, lesser people will be looking for jobs and the company will find it harder to fill up job vacancies. This will cause the salaries of the workers as well as company spending to increase, resulting in the company passing on the extra costs to the consumer. Together with the raise in salaries for the employees, they will have more to spend, resulting in an increase in an aggregate demand. All this will result in rapid economic growth, where the increase in price will cause inflation to occur.

1. What is inflation? Inflation is an increase in prices for goods and services (What is Inflation?).

According to the Federal Reserve Bank of San Francisco (2002), inflation can be defined as the increase in the level of prices and a decrease in the purchasing power of money. In short, money loses its value due to the increase of the prices of goods and services. Products that can experience this are food, clothing, electronics, raw materials, and more. The reasons for these occurrences are complex since there are two types of inflation, and each has its respective causes.

Inflation is the sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. (Investopedia) During periods of inflation, the prices of products and services will rise. There are several reasons why an economy would see a rise in inflation. Decrease in supplies, corporate deciding to charge more, and consumer confidence are some of the reasons why an economy would see the inflation rate increase. Consumer confidence is when consumers gain more confidence in spending due to a low unemployment rate and wages being stable. Decrease in supplies is when consumers are willing to pay more for a product or service is that is slowly becoming unavailable due to a decrease in supplies. Corporate decisions are when the corporations basically decide

In economics, with the inflation is a rise in the actual general level of prices of goods and services in an economy from over a period of time. When the general price level rise, such as each of the units currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power4 per unit of money. This therefore means that with the loss of real value in the medium of exchange and unit of account within the given and actual economy. With a chief measure for example and the price of inflation is within the given inflation rate, the annualised percentage change within a general price index over time in which is normally the consumer price index.

commodities increases such as milk, gas and bread. It is a rise in all prices simultaneously. Inflation is caused when the demand for something exceeds the supply. This causes the price of that particular item to go up which in turn causes wages to go up and operating costs also increase (inflation).

Many people blamed oil prices, union leaders, and greedy businessmen for the great inflation. The real reason that the Great Inflation was started was because of an inflation rate or interest rate to ensure price stability and general trust in the currency, or the bank allowing too much money borrowed. Many political leaders were supportive which added on to this problem. The Great Inflation wrecked many businesses, and hurt individuals.

The collapse of the Soviet Union at the end of 1991 marked the beginning of Russia’s transition from a communist system to a market-based economy and democratic political system. Russia, despite being a nation rich with natural resources such as oil, fell into a state of economic instability and continued to weaken throughout the 1990s. The situation escalated until the point of financial collapse on August 17, 1998, resulting in a 90-day suspension on payment to foreign creditors, a default on domestic debt, the devaluation of the ruble and as a consequence, an increase in all debts denominated in foreign currencies. The primary causes of Post-Communist Russia’s economic crisis of the 1990s can be identified as the corporate elite’s influence on parliamentary economic agenda, foreign influence and pressure, the government’s ineffective integration into the global market and its presentation to the international community, as well as the government’s inadequate macroeconomic preparation and management. These causes significantly weakened the power of the state and the government’s ability to effectively instigate economic reform; leading to a large drop in investor confidence and consequently, a devaluation of the ruble, which resulted in the August 1998 economic crisis.

Historically, the ruble is one of Europe’s oldest currencies and has been in use since the 13th century. Over the past 100 years, the ruble has experienced two major economic crises and is on the brink of a third. The first crisis came after the overthrow of Tsar Nicholas II and the establishment of the Soviet Union in the early 1920’s. Under the regimes of Joseph Stalin, Nikita Khrushchev, Leonid Brezhnev, and Mikhail Gorbachev the Soviet ruble was able to stay on par with the value of the USD, due in large part to enormous overvaluation. This fiscal negligence came to its’ boiling point in 1991 following the collapse of the Soviet Union. What followed was a decade of hyperinflation, widespread poverty, and loss of foreign investment. Although Vladimir Putin has managed to calm a great deal of economic despair that plagued the country in the 1990’s, recent trends suggest Russia is on the verge of another economic disaster. If the Russian ruble is continuously devalued due to Western and European Union (EU) sanctions, then Russian foreign policy would grow increasingly volatile and potentially result in escalated conflicts as Putin would grow increasingly desperate to reassert his authority.

Inflation is a sustained increase in the general level of prices for goods and services

Central Bank of Russia (CBR) introduced an exchange rate target band. The regime was mutating during the following three years, featuring various corridor ranges, levels and crawls. Also, from 1996 the CBR targeted an “inner band” with a small range and a short announcement horizon, in order to smooth the day-to-day fluctuations of the ruble. Yet the principal regime remained in place until August 1998. It slowed ruble depreciation to a 9.7% average during target regime which compares impressively to the 138% during the 2 years prior to it. Cash revenues declined, on the federal level they fell from 12.9% of GDP in 1995 to just 10.7% in 1998. Enlarged government revenues declined from 33% to 31.7%. Tax collection problems were mostly structural and tedious to ease. Tax laws were complicated, inefficient and inconsistent.

There are different influences that cause inflation such as energy, food, commodities, and other goods and services. The entire economy is affected by rise of the cost of living. It also affects the cost of operating a business, borrowing money, mortgages, corporate and government bond yields, and every other aspect of the economy. There are several advantages of inflation in the economy. Some include moderate rates of inflation which allows prices to adjust. This is considered a sign of a healthy economy. With economic growth available we usually get a generous amount of inflation. Also moderate inflation rate reduces the actual value of debt. If there is a reduction, the real value of debt increase leads to a squeeze on usuable income.

Despite all the issues mentioned above, the biggest challenge to Russian economic growth is probably its monetary policy. The Russian central bank is a direct holdover from Soviet times and needs to change its policy drastically to adapt to a free-market economy. In a capitalist economy, private banks serve to store money and provide investment to business. Because banks lose their investment when a debtor defaults, they are careful to insure that entrepreneurs

The project that the group will be handling is about Inflation and how can these four

Another factor that contributed to the growth of inflation was the drought in many parts of Brazil . That condition increased the costs of production of in natura products which also led to an increase in food price in general. Because of the drought, producers are reducing the area of plantation in 30% to 50% and that reduces also the availability of those products in the market, driving up the prices even more.