Ministry of education tashkent financial institute

Conclusion …………………………………………… 27

References ………………………………………. 29

Introduction

Deep reforms in the economy of the Republic of Uzbekistan are aimed at ensuring sustainable growth, improving the living standards of the population, improving the country's economy in times of global crisis. In this regard, in order to improve macroeconomic indicators in the economy of the country and ensure sustainable economic growth, the President of the Republic of Uzbekistan has identified a number of measures and signed several resolutions to improve economic indicators. In particular, in order to reduce inflation in the country, to keep prices for goods and services at the same level, on November 18, 2019, the President signed the "IMPROVEMENT OF MONETARY POLICY POLICY THROUGH THE STAGE-STAGE TRANSITION TO INFLATION TARGET REGIME."

Reducing inflation to 5 percent is the biggest challenge facing the government. This was stated by President Shavkat Mirziyoyev at a joint session of the Oliy Majlis on January 21, 2020. "Reducing inflation to 5 percent is the biggest issue," he said. People will not agree with us if we do not reduce inflation to 5% in the next five years. This is a very important, very sensitive issue that people who understand economics understand well.

For years, we ignored inflation. Everything was wrong. If you ask why, we have never considered prices. "

History has shown that this word is dangerous in every way.

Because inflation is not only an increase in the price of goods and services in a particular market, it is a dangerous phenomenon for the economy as a whole. The economic meaning of the word inflation is to emission more money than the goods and services in circulation their values.

The end of inflation in the economy leads to an increase in commodity prices, the emergence of unsatisfied but partially repayable demand. This type of inflation is commonly referred to as classical inflation. Inflation has become a frequent trend in recent years, and its quality is changing.

The reason for this is that current inflation: firstly, to a steady rise in prices; secondly, it leads to the failure of the general economic mechanism as a result of violation of the law of money circulation.

The main cause of inflation in the twentieth century is not only the shortage of goods, but also the existence of crises in production and processing.

Current inflation is, firstly, a violation of the law of money circulation as a result of the demand for money exceeding the supply of goods; second; is characterized by an increase in the price of goods as a result of an increase in the share of production costs and, consequently, an increase in the money supply.

The main cause of inflation is the imbalance between different sectors of the national economy. This is primarily between savings and consumption, between supply and demand, between government revenues and expenditures, the money supply and household demand for cash imbalances between. Depending on the factors that cause inflation, its causes can be divided into internal and external causes.

Internal factors of inflation are divided into types related to monetary policy and economic activity.

External factors of inflation include crises in the world economy (raw materials, fuel, currency), the state's monetary policy, the state's illegal transactions with other countries, and so on.

In short, the general or continuous increase in the price of goods and services due to disproportions in the development of social production and the consequent violation of the law of money circulation, resulting in the devaluation of the currency, is called inflation.

1. The essence and causes of inflation

In economics, inflation (or less frequently, price inflation) is a general rise in the price level in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time.

Economists believe that very high rates of inflation and hyperinflation are harmful, and are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.

Inflation affects economies in various positive and negative ways. The negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing unemployment due to nominal wage rigidity,  allowing the central bank more leeway in carrying out monetary policy, encouraging loans and investment instead of money hoarding, and avoiding the inefficiencies associated with deflation.

Today, most economists favor a low and steady rate of inflation. Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.

In this work we will deal with inflation, another macroeconomic instability. Inflation is a macroeconomic phenomenon that attracts a lot of attention and touches all of us, because money loses its purchase power during inflation. Beside it, deflation is not desirable, too. Within the text, we will discuss ways of measuring inflation, inflation forms; we will discuss the implications of inflation on the economy and take into account the possibilities of macroeconomic policy trying to reduce the inflation rate.

What happens when inflation in the real economy, we were able to observe in the past. In 1923 prices increased up to a billion times in Germany, compared to the pre-war situation. Prices rose at a pace that workers had official breaks, to spend their wages paid several times a day, because purchasing power of money fell the incredibly rapidly during the day. Prices for food and drink in restaurants increased as people have not even finished eating. Savings were completely degraded, as well as outstanding loans. People needed bags for money to buy bread and butter. At prices rose, nobody could afford to save, invest, lend money or make long-term plans. In an environment of rising prices the production of goods and services virtually halted, unemployment increased quickly and German economy was on the brink of collapse. Hungary experienced a similar case in 1946, as well as Japan. Quite recently prices have undergone at least a tenfold increase in Russia, Brazil, Zaire, Yugoslavia, Argentina, and Uruguay. The Czech Republic experienced higher inflation at the beginning of the 90s.

Inflation and its typology

Most people understand inflation as an increase in prices for some goods or services. But the economy does not necessarily suffer from inflation every time when the price of several goods rises. We have to distinguish between the inflation and price increases of specific goods. Inflation is an increase in the average price level, not just the increase in prices of specific goods.

Imagine our task is to determine the average price of fruit at a supermarket. We need to know the price of apples, oranges, bananas, peaches etc. If we know the price of each fruit, we will be able to calculate the average cost of fruit. The final figure will not apply to any particular product, but it will tell you how much a typical shopping basket of fruit probably costs. If we repeat this calculation each day, we will be able to determine how much the prices of fruit vary. Sometimes we find that while the price of bananas is growing, oranges price is falling, so the average price of fruit remains unchanged.

The same principle will be applied in calculating the inflation for the economy as a whole. First, we find the average price of all output or average level of prices and then we observe the changes of the average price level.

The average price level can increase, decrease, or may remain unchanged. Deflation occurs when prices drops for some goods and services outweigh the prices increases of other goods and services. This situation occurred e.g. in Japan in 1995 and again in 2000.

The process of reducing inflation over time will be referred to as disinflation (inflation rate decreases over time (e.g. from 5% to 4%, then 3%). The opposite phenomenon is the acceleration of inflation (inflation rate increases over time - its growth is accelerating).

Inflation or deflation is measured in terms of average price levels. Increases or decreases in individual prices affect the average price level. We have already stated that e.g. the price of bananas can grow without increasing the average price of fruit, unless the price of some other fruit e.g. oranges is falling. Under these circumstances, the relative prices are changing. Increasing relative price of bananas means that bananas are more expensive compared with other fruit more expensive. Changes in relative prices can occur in a period of stable average prices, in periods of inflation or deflation. Changes in relative prices are a fundamental part of the market mechanism. Change in the relative price of specific goods is important market signal.

Inflation that does not change the relative (relative) prices of goods and services is called balanced. Unbalanced inflation means that the relative prices of goods and services alter. Unbalanced inflation changes the equilibrium situation at the markets. Manufacturers will have to change the volume of production.

If the price average level grows and price index is changing, we are talking about an open inflation. In the case of certain price regulation due to the economic policy of the country, we talk about blocked inflation, which has implications in terms of the existence of scarce goods, characterized by the growth of forced savings and expansion of the shadow economy. After the removal of barriers blocked inflation will turn into open inflation.

Inflation not captured in the price index is referred to as hidden. It arises even if there is deteriorating quality of products and services, while their prices are constant.