In January 2022, Russia’s annual inflation rate increased to 8.73 percent, up from 8.39 percent the previous month and slightly below market expectations of 8.8 percent. It was the highest rate since January of last year.
What caused Russia’s hyperinflation?
Following Boris Yeltsin’s leadership in 1991, the government took a huge step toward building a market economy by instituting basic principles such as market-determined prices. The shift from central planning to a market-based economy has two essential and interrelated goals: macroeconomic stabilization and economic transformation. The former involves enacting fiscal and monetary policies that encourage economic growth while maintaining price and exchange rate stability. The latter necessitated the establishment of commercial and institutional institutions, such as banks, private property, and commercial legal systems, that allow the economy to function effectively. Opening local markets to international trade and investment, and thereby connecting the economy to the rest of the globe, was a critical step toward achieving these objectives. These fundamental goals were not addressed by Gorbachev’s leadership. The Russian Republic’s Yeltsin government had begun to address the problems of macroeconomic stabilization and economic reform at the time of the Soviet Union’s disintegration. The outcomes were mixed by mid-1996.
Russia has attempted to build a market economy and achieve sustainable economic growth since the breakup of the Soviet Union in 1991. Yeltsin said in October 1991 that Russia will pursue dramatic, market-oriented reforms along the lines of “shock treatment,” as advised by the US and IMF. The dismantling of Soviet price controls caused hyperinflation, which occurred again after the Russian financial crisis in 1998. Taking on the role of the Soviet Union’s ongoing legal personality, Russia assumed responsibility for paying the USSR’s external debts, despite the fact that its population was only half that of the USSR at the time of its disintegration.
Despite the country’s richness of natural resources, well-educated populace, and broad – if increasingly decaying – industrial base, Russian GDP shrank by an estimated 40% between 1991 and 1998. However, such a statistic could be misleading because much of the Soviet Union’s GDP was spent on military spending and the production of items with low demand. The cessation of much of that wasteful expenditure gave the mistaken impression that the economy was contracting more than it actually was.
In the early years of the post-Soviet period, critical aspects such as privatization of state businesses and extensive foreign investment were pushed into place. However, by 1996, other critical components of the economy, such as commercial banking and authoritative, complete business regulations, were either missing or only partially in place. Although a return to Soviet-era central planning appeared unlikely by the mid-1990s, the post-transition economy’s structure remained unclear.
What is a reasonable rate of inflation?
The Federal Reserve has not set a formal inflation target, but policymakers usually consider that a rate of roughly 2% or somewhat less is acceptable.
Participants in the Federal Open Market Committee (FOMC), which includes members of the Board of Governors and presidents of Federal Reserve Banks, make projections for how prices of goods and services purchased by individuals (known as personal consumption expenditures, or PCE) will change over time four times a year. The FOMC’s longer-run inflation projection is the rate of inflation that it considers is most consistent with long-term price stability. The FOMC can then use monetary policy to help keep inflation at a reasonable level, one that is neither too high nor too low. If inflation is too low, the economy may be at risk of deflation, which indicates that prices and possibly wages are declining on averagea phenomena linked with extremely weak economic conditions. If the economy declines, having at least a minor degree of inflation makes it less likely that the economy will suffer from severe deflation.
The longer-run PCE inflation predictions of FOMC panelists ranged from 1.5 percent to 2.0 percent as of June 22, 2011.
Why is inflation so detrimental to the economy?
- Inflation, or the gradual increase in the price of goods and services over time, has a variety of positive and negative consequences.
- Inflation reduces purchasing power, or the amount of something that can be bought with money.
- Because inflation reduces the purchasing power of currency, customers are encouraged to spend and store up on products that depreciate more slowly.
What country has printed an excessive amount of money?
Zimbabwe banknotes ranging from $10 to $100 billion were created over the course of a year. The size of the currency scalars indicates how severe the hyperinflation is.
In 2021, which country will have the lowest inflation rate?
Japan has the lowest inflation rate of the major developed and emerging economies in November 2021, at 0.6 percent (compared to the same month of the previous year).