What is the inflation rate and how to calculate it

Under inflation is understood the excessive increase in the money supply, overflowing the channels of circulation of money and leading to an increase in prices for goods and services. From the Latin language, the term "inflation" is translated as "swelling". The concept itself arose in the twentieth century in connection with the cardinal changes in the world economy and initially meant the redundancy of the paper money supply.

In our time, inflation is an invariable companion of a market economy. This is due to the rapid growth in the production of goods, the complexity of its structure, the changing practice of pricing. The change in the price dynamics towards the increase is the main prerequisite for inflation. Also the reason is the deficit of the state budget as a result of the growth of government spending.

The main characteristic of inflation is its magnitude. The higher it is, the worse for the country's economy. Quantitatively the magnitude of inflation is characterized by such an indicator as the rate of inflation, i.e., the rate of development of its process.

The rate of inflation depends on the rate of price growth. There are three main types:

1. Creeping (or moderate) inflation, with its rise in prices is relatively low. The increase is no more than 10% per year. This kind of inflation is typical for most developed countries and does not pose a serious threat to their economy. Moreover, some economists even consider moderate inflation an indispensable and health-improving factor that allows stabilizing the value of the money supply.

2. Galloping inflation, when the price increase fluctuates in the year from 20% to 200%. This pace is already a serious destabilizing factor for the country's economy and creates great tension in society. In the initial stage, there is a rapid increase in the money supply, considerably exceeding the price increase. At the main stage, a sharp surge occurs. This stage is characterized by an increase in the number of barter transactions, a partial transition to natural exchange. However, at a given rate, inflation can still be predicted.

3. The rate of inflation, in which prices increase in a year faster than by 200%, is typical for hyperinflation. With it, money loses its functions as a measure of value and savings, the situation in the economy goes out of control and ceases to be susceptible to forecasting. With an increase in prices of fifty percent a month, they talk about super-hyperinflation, but it is not a limit either.

Calculation of the growth rate of inflation is used to assess the intensity of its process and is necessary in the conclusion of long-term transactions. As a rule, it is required to calculate the projected inflation rate for the year, which, in turn, is calculated according to the expected average monthly growth rates. These forecasts are taken from official sources, where the expected indicators of the state of the economy for the coming and longer periods are published.

When calculating the projected tempo for any period, a formula is used in which the average monthly expected rate of inflation for a given period is raised to the power equal to the number of months in a given period.

Based on this indicator, the annual inflation index is also projected . Such data are used to form the interest rate on the financial market, which is reflected in the value of the stock exchange contracts.

How can you characterize the current inflation rate in Russia? According to experts, the dynamics of growth is quite high. If this trend continues, by the end of the year the inflation figures will exceed all the forecasted indicators. At the initial forecast of the price growth rate of 6%, experts today call the figure about 9%, while in most regions where the source of heat energy is gas, it is planned to increase tariffs from 12-15% and above.