Why is inflation not just a rise in prices?

Have you ever noticed that 100 rubles buy less today than a year ago? This is inflation, and it acts like an invisible tax on your savings.

How does it appear?

The main reasons are three:

1. Demand inflation — everyone wants to buy immediately, there is a shortage of goods, and prices soar. Like in a bakery: if demand increases and the ovens are working at full capacity, bread becomes more expensive.

2. Cost-push inflation — the wheat harvest has fallen, oil prices have risen, and the Ministry of Communications has raised taxes. Producers pay more → pass the costs onto consumers.

3. Expectation inflation — people have gotten used to rising prices, start demanding higher wages, and companies raise prices even more. A vicious circle.

How to measure it?

The Consumer Price Index (CPI) tracks the prices of a basket of goods. If the base year = 100, and after two years = 110 — inflation is 10%.

Advantages of inflation:

• People are rushing to spend money now rather than saving (stimulus of the economy)
• Companies take loans for development
• Better than deflation ( when all prices fall, people don't buy anything at all )

Cons:

• Your savings are losing value
• Hyperinflation (>50% per month) is a nightmare, the economy will collapse.
• High uncertainty - no one knows what tomorrow will bring.

How does the state fight?

Increasing interest rates ( makes loans more expensive, people borrow less ) or changing taxes ( takes money from the people, demand falls ).

The optimum is moderate inflation (2-3% annually ). Above that is already dangerous, below that the economy may stagnate.