An economy that has been developing for a long time and has flexible prices is always accompanied by inflation, an entity whose causes are interpreted differently by different directions. This is one of the biggest problems in almost all countries of the world. Although some scholars argue that the economic situation is only recovering due to the low level of inflation, one cannot but note its detrimental effect on the distortion of price information. Because of it, decisions, even those made according to the rules and taking into account new information, are becoming less and less effective.
The socio-economic effects of inflation are very deep. In the whole world, perhaps, there is no country that would not “have been ill” with this serious illness.
So, the socio-economic consequences of inflation are as follows.
1. She destroys the usual economic ties. The economy is growing confusion and imbalance. The investment process is shaken , since with an uncontrollable increase in prices, profit, that is, the purpose of production, can be obtained without expanding it.
2. Further, the socio-economic effects of inflation are exacerbated even more. Since no one needs production in the same volume, capital from this sphere is moving into the sphere of turnover. First of all, these are commercial structures, “scrolling” through which, money brings huge profits much faster. Simultaneously with this process, capital is moving abroad in search of more profitable use and guaranteed income. Thus, corruption and speculation are gradually increasing in society, and a shadow economy is emerging.
3. The socio-economic consequences of inflation affect the functioning of the monetary system. Banknotes depreciate, the population loses the incentive to accumulate them. Both entrepreneurs and ordinary citizens prefer to invest in the acquisition of real estate and various goods. Loan agreements also have to be broken, because in the new conditions it is unprofitable to give them at low interest for a long time. In this case, the debt will be repaid in money that already has time to depreciate.
4. Also, inflation does not contribute to the development of foreign economic relations of the country. Domestic goods are losing competitiveness and are difficult to export. And the import of goods, on the contrary, is increasing, since they have higher prices in the domestic market. Inflation inhibits the flow of foreign capital into the country. Depreciation of the national currency leads to a decrease in its market and official exchange rates.
5. Inflation leads to a decline in the living standards of the entire population. This is especially true for those who previously had stable income, since its growth rate is not keeping pace with the growth rate of prices for services and goods.
6. Inflation depreciates the money savings that the population once invested in banks, insurance policies. The same thing happens with other fixed-value paper assets.
7. Inflation increases unemployment. There is a growing social tension in society. The population loses motivation for effective work.
All the economic and social consequences of inflation discussed above also influence how market entities will behave . Most likely, they will lose confidence in each other and in the state. And this, in turn, will increase economic instability in society.
To successfully combat the above consequences, the state has an anti-inflationary policy. This is a whole complex of short and long term events. The former are aimed at reducing the level of already existing inflation, and the latter are aimed at preventing its occurrence in the future.