Inflation

Inflation is generally defined as a persistent rise in the general price level

with no corresponding rise in output, which leads to a corresponding fall in the purchasing power of money.

Inflation varies considerably in its extent and severity. Hence, the consequences for the business community differ according to circumstances. Mild inflation of a few per cent each year may pose few difficulties for business. However, hyperinflation, which entails enormously high rates of inflation, can create almost insurmountable problems for the government, business, consumers and workers. In post – war Hungary, the cost of living was published each day and workers were paid daily so as to avoid the value of their earnings falling. Businesses would have experienced great difficulty in costing and pricing their production while the incentive for people to save would have been removed.

Economists argue at length about the causes of, and "cures" for, inflation. They would, however, recognize that two general types of inflation exist:

• Demand – pull inflation

• Cost – push inflation

Demand – pull inflation

Demand – pull inflation occurs when demand for a nation's goods and services outstrips that nation's ability to supply these goods and services. This causes prices to rise generally as a means of limiting demand to the available supply.

An alternative way that we can look at this type of inflation is to say that it occurs when injections exceed withdrawals and the economy is already stretched (i.e. little available labour or factory space) and there is little scope to increase further its level of activity.

Cost – push inflation

Alternatively, inflation can be of the cost – push variety. This takes place when firms face increasing costs. This could be caused by an increase in wages owing to trade union militancy, the rising costs of imported raw materials and components or companies pushing up prices in order to improve their profit margins.

Ex. 3. Give English equivalents to the following:

повышение цен, не сопровождающееся повышением производства; гиперинфляция; неразрешимые проблемы; ежедневно; громадный рост инфляции; трудности в определении стоимости и цены; инфляция спроса; инфляция издержек; мало рабочей силы; это является причиной повышения цен; уменьшение спроса до имеющегося предложения; благодаря; сырье; чтобы увеличить прибыль; бывает разной по длительности и остроте; фирмы сталкиваются cповышением издержек производства.

Ex. 4. Give Russian equivalents to the following:

fall in the purchasing power of money; mild inflation; may pose few difficulties; post – war, the cost of living; "cure" for inflation; nation's ability to supply; infections exceed withdrawals; there is a little scope; an increase in wages; pushing up price; this could be caused

Ex. 5. Fill in the gaps with the words and expressions from the text:

1. Inflation varies considerably in its _____and _____.

2. Mild inflation may _____few difficulties for business.

3. Businesses would have experienced great difficulty in ____and ____their

production while _____for people to save would have been removed.

4. Demand – pull inflation occurs when _____for a nation's goods and

services_____ that nation's ability to _____these goods and services.

5. An alternative way that we can look at this type of inflation is to say that

it occurs when injections _____ withdrawals.

6. An increase in costs for firms, for example, can be caused by an increase

in wages ______trade union militancy.

7. Hyperinflation can create almost ______ problems for the

government, business, consumers and workers.

8. Economics argue about _____ of, and ______ for, inflation.

9. _____ inflation refers to the fact that businesspeople raise prices when the costs of various factors of production go up.

10. _____ inflation refers to a condition in which buyers want to buy more goods and services than are available at the time.