Ministry of education tashkent financial institute

3. Analysing economic and social impact of inflation

The presence of inflation in any country worsens the economic situation in it. These negative situations occur in the following areas:

1) The volume of production is reduced, because the constant fluctuations in prices lead to a loss of confidence in the prospects for the development of production;

2) The outflow of capital in the manufacturing sector is observed in trade and brokerage operations. This is because capital turnover in trade and brokerage is fast and profitable. At a time of high inflation, there is a situation of money flight among the population, that is, people try to spend as much money as possible. They buy different goods for money. As a result, goods are quickly sold in trade and brokerage shops;

3) Speculation expands as a result of sharp and uneven changes in prices. Inflation results in a commodity deficit. This shortage will lead to a sharp rise in prices;

4) Public financial resources are devalued. State budget revenues are depreciated in the period until budget expenditures are realized. It is difficult to maintain a balance between budget revenues and expenditures, and as a result, there is a budget deficit;

5) Credit operations are limited in the country. Because of the high inflation rate, interest rates on loans from commercial banks to legal entities and individuals are set at a high level. This negative situation undermines confidence. The main social consequence of inflation is the redistribution of income and wealth. This redistribution is due to the following factors:

- non-indexation of incomes of the population;

- loans issued by commercial banks to legal entities and individuals without taking into account changes in price indices.

Under conditions of inflation, the country's GDP and national income are redistributed in the following areas:

1) As a result of uneven growth of prices between sectors of the national economy, industries and regions of the country;

2) Between the population and the state. At the same time, the state uses the excess money supply as additional income. In international practice, this is called an inflation tax;

3) Between classes and different categories of the country's population. As a result of the uneven growth of prices for goods and services, the division of the population into social categories (rich, poor, destitute), the deepening of the gap in property status, a sharp decline in savings and current consumption change occurs. The negative social impact of inflation is particularly severe for those with fixed incomes - pensioners, the disabled, large families and civil servants (teachers, doctors, kindergarten staff, etc.). will pass;

4) Between debtors and creditors. In this case, as a result of the depreciation of borrowings, debtors receive income, and, conversely, creditors incur additional losses. In addition, the negative economic and social consequences of inflation have an active impact on the country's foreign economic relations. They interact with countries with high inflation on the basis of additional insurance and various guarantees.

In international practice, this relationship is called trade discrimination or discrimination. The country's economy is particularly negatively affected by uncontrolled (hyperinflation). As a result, economic and social tensions will intensify, and public discontent with the government will intensify. Therefore, the government will have to take sensible anti-inflation measures to resolve the conflict positively and stabilize the national monetary system.

The developed countries of the world have a great deal of theoretical and practical experience in combating inflation. There is no way to completely eliminate inflation. Because it is impossible to completely eliminate the factors that led to its emergence (internal and external, paid and non-paid). Therefore, the main goal now is not to completely eliminate inflation, but to manage it and mitigate its negative economic and social consequences. In different countries of the world, the government develops and implements various anti-inflation policies based on the existing socio-economic conditions.

The state implements various measures in the conduct of anti-inflationary policy, including budget, social, tax, appraisal, credit and financial, industrial-investment, foreign economic and emission. Fiscal policy is the main economic policy of the state, and its main purpose is to identify and implement the priorities of socio-economic development of the country over a specified period. With the help of fiscal policy, the redistribution of public financial resources collected on the basis of taxes and fees for the implementation of national tasks is carried out. The main component of budget policy is social policy. Because the financing of social events in the country is mainly carried out by the state budget.

Tax policy is a system established by law for the establishment and collection of taxes, fees and mandatory deductions from businesses and the population of the country to raise funds necessary for the implementation of economic, social and political functions of the state. Pricing policy is a policy aimed at achieving and regulating the balance between demand for goods, services and solvency.

Credit and financial policy is the management and regulation of the country's banking and credit system by the Central Bank through the refinancing rate, the required reserve ratio and open market operations.

Industrial and investment policy is a policy aimed at developing the industrial and technological potential of the country, ensuring GDP growth. Foreign economic activity policy is the state regulation of foreign economic activity by foreign countries with the help of customs tariffs. Issue policy is a policy of the Central Bank based on the state of the national economy, the issuance of paper money, the regulation of their circulation and the withdrawal of excess money from circulation.

The anti-inflation policy of the government in each country of the world should be aimed at regulating the existing inflation and reducing its growth rate. There are two main forms of such a policy:

1) Implementation of monetary reforms;

2) government regulation of inflation; Monetary reform is the implementation of complete or partial changes in the existing monetary system by the state in order to regulate and strengthen the circulation of money in the country.

Revaluation, devaluation and denomination methods of monetary reform are used depending on the economic development of the country, the level of money supply. In developed countries, the Federal Republic of Germany, Israel and others used the method of revaluation.

In essence, revaluation is the raising of the exchange rate of the national currency against a foreign currency. The second method of monetary reform is devaluation. In essence, devaluation is the devaluation of the national currency against a foreign currency. The devaluation method is widely used mainly in countries whose economies are transitioning to market relations. The third method of monetary reform is denomination.

Denomination, in essence, consists in the issuance of new money by removing the excess zeros in the national currency. The denomination method was used by the governments of Russia (removed 3 zeros) and Turkey (removed 6 zeros from the lira). The essence of state regulation of inflation is to take concrete measures to limit the growth of prices for goods, works and services in the country and to stabilize the monetary system. These measures are carried out in two directions:

1) Deinflation policy. This policy regulates the demand for money in the country through monetary and financial mechanisms. Inflationary policies include cutting government spending, raising interest rates on loans, increasing the tax burden (increasing the number of taxes and their interest rates) and limiting the money supply. It should be noted that deflationary policies slow down economic growth in the country;

2) Income policy. In carrying out this policy, the state suddenly controls the prices for goods, services, work performed and wages, and sets a certain limit on their growth or completely "freezes" them. Revenue policy is, by its very nature, a rigid policy and can provoke public outcry. But in some countries, income policies are used to combat inflation. In international practice, in the experience of anti-inflationary approaches in developing countries, the two directions we have mentioned have been used wisely together.

Inflation, in particular, has a severe impact on the transition economy. This is due to the liberalization of prices, which is a very important step in the path of a market economy, ie the abolition of state control over prices. The consequences of such price liberalization can be predicted. : The prices of goods that have always been in short supply are rising. Why? This is due to the fact that the state has artificially set the prices of these goods, and demand is always ahead of supply, or due to economic disruptions and inefficiencies caused by government decisions. If, by the time of the transition, people had accumulated large sums of money in the ashes (because it was not possible to spend them on anything of value), the burden of inflation could be even heavier. However, what can be achieved at the expense of all the difficulties of this inevitable inflationary crisis in the transition period will be much greater. Demand and supply can begin to operate independently of government chains. High prices indicate that demand is very strong and the market is slow at first. hamki responds by increasing production. Although the money accumulated in people's ashes has lost its value, the money in their ashes has now become real money, and consumers can buy goods that are beginning to appear in stores.

As supply increases, prices stabilize and the queue becomes more loaded, as the consumer becomes more and more convinced that there are more and more different products on sale. Entrepreneurs and investors respond to the new economic freedom by discovering new entrepreneurs and competing in the supply of goods and services, thus creating jobs, increasing supply and further normalizing prices. The most important point of such a transition is that the government renounces its role in setting prices and allows market forces to offer goods and services. Once such a free market is strengthened, inflation may continue, but it will be a manageable and less risky problem than in the more difficult first period of economic transition. The ‘obesity’ of money supply and price levels is often intertwined and one goes hand in hand with the other.

For example, if the number of goods does not increase with the increase in money supply, it is natural that this will lead to an increase in prices or a decrease in the purchasing power of money, and conversely, an increase in the price level will increase the demand for money by economic agents. However, the essence of inflation is not only that the money supply is filled with money that is not supplied by the commodity mass. The essence and causes of inflation are very deep and should be sought in the imbalances in the process of reproduction (production, consumption and accumulation, exchange and consumption of social goods), the imbalance between production and finance. They can be very diverse - from conjunctural, cyclical asymmetries to structural and systemic asymmetries.

In order to better understand the essence of inflation, it is necessary to focus on the phenomenon of inflation tax, the essence of which is that when subsidies are not provided in the budget, its employees have an additional advantage over employees of other industries.

The consequences of inflation are complex and varied. Its small pace contributes to the growth of prices and profit margins, thus temporarily revitalizing the situation. As inflation deepens, reproduction becomes a serious obstacle, exacerbating economic and social tensions in society. Price fails to fulfill its main function in a market economy - to provide objective information to economic entities. Inflation intensifies the migration of goods from money, making this process a big flow, eliminates the existing interest, and the exchange of goods helps to rebirth. High inflation rates have a negative impact on the fiscal system, as the real amount of taxes coming into the budget decreases. In the context of inflation, the savings of the population will depreciate, and lending banks and institutions will suffer. Long-term lending will not be possible, as it will be necessary to constantly index credit rates during the lending period.

There are also social consequences of inflation: the growth rate of nominal as well as real wages lags behind the sharply rising prices of goods and services. All categories of people with a fixed income from inflation suffer, their incomes either decrease or increase at a lower rate than inflation.