Inflation can have an unpredictable pace. In conditions of an unexpected, rapid rise in prices, some market entities find profit, while others suffer losses.
The consequences of inflation are manifested primarily in the redistribution of wealth and income. Lenders are in a less favorable position than debtors. The latter are getting richer due to the former. For example, the repayment of a home construction loan, in accordance with an agreement, is carried out at fixed prices. At the same time, amendments to agreements of this kind for the depreciation of funds are not made. In this regard, in a period of instability, lending at a fixed rate is extremely unprofitable.
The effects of inflation are reflected in the price balance. So, the market value of goods differs from the prices of state enterprises. In a regulated (state) sector, prices of production costs and products (goods) are reviewed longer and less frequently than prices in the private sector of the economy. With inflation, state-owned enterprises are forced to justify every increase in the value of goods and receive permission from all organizations above. It should be noted that, given the regular, spasmodic, unexpected increase in the general price indicator, it is technically extremely difficult to carry out these actions. As a result, an imbalance in the public and private sectors develops, while the state loses its ability to influence the market. These effects of inflation are considered by experts to be the most dangerous.
In the context of an abrupt increase in prices, the state begins to covertly withdraw money from the population through taxes. At the same time, progressive taxation automatically often credits different types of business and social groups to more affluent ones. Thus, the government gets the opportunity to collect an increasing amount without adopting new rates and tax laws. In this regard, the attitude of the population and entrepreneurs towards the government is deteriorating.
The consequences of inflation are manifested in the accelerated materialization of finance. Corporations and citizens seek to invest their depreciating funds in tangible assets as quickly as possible. Enterprises begin to develop plans to enhance the use of cash resources. With a simple change in the relative scale of value, the excessive, too fast and insufficiently thought-out consumption of real economic reserves is stimulated. As a result, there is an overstrain of the economic sector. In addition, interbranch proportionality is violated. These economic consequences of inflation were clearly manifested in Russia, when a panicky investment in construction began, the population began to buy furniture, gold. The enterprises began to accumulate "in reserve" productive means, in connection with the likelihood of an increase in the wholesale cost of materials.
In the context of an increase in the general price level, a decrease in the real monetary interest rate occurs by the value of the annual inflation rate.
Unpredictable leaps increase imbalance in the economy. Inflation contributes to the disorganization of economic relations, provokes a crisis in public finances. The social consequences of inflation are reflected mainly in the decrease in real incomes of citizens, depreciation of the savings of the population. Along with this, a deterioration in the quality of life of representatives of social groups with “solid” incomes (pensioners, students, employees and other citizens whose income is generated from the state budget) is noted.
It is believed that inflation is one of the most dangerous and painful phenomena today. In addition to the negative impact on the financial and economic sectors, this process undermines the ability to regulate economic activity, nullifying all efforts to implement structural changes.