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Inflation… inflation… inflation. Today, perhaps, there is not a single person in our country who, one way or another, would not use this term in simple usage.

With inflation, we come across everywhere. At the beginning of the year we, say, receive a salary of 1 million soums. Somehow they adopted - and enough. Only by the end of the year we begin to understand that the salary is the same, and the purchases seem to be the same, but there is a shortage in the family budget. Or there is unplanned use a stash for no apparent reason. It turns out that we have to work harder or to seek additional sources of income to buy the same amount. It occurs in all countries, although to varying degrees, because we live in an inflationary world.

Let's try to figure out what "inflation" is and what it threatens us with?

As an economic phenomenon, inflation has been around for a long time. Many economists believe that its origin occurred almost with the emergence of the money itself.

Let us turn to history. The term "inflation" (from the Latin inflatio - "swelling") first began to be used in North America during the Civil War of 1861 - 1865 and denoted the process of swelling of the monetary circulation. In the nineteenth century, this term was also used in England and France. However, it became widespread in the economic literature in the 20th century right after the First World War.

There are many definitions of the term "inflation". So, for a simple person, far from the scientific world and economic terminology, inflation is, above all, a rise in prices.

Many economists under inflation understand the imbalance of supply and demand, other proportions in the economy, manifested in price increases. However, this does not mean that in the period of inflation all prices grow. Some goods can significantly increase in price, the prices for others - remain stable, the rate of price growth can also be different for different goods and services.

The most concise definition of inflation is an increase in the general price level, the most common is the overflow of circulation channels of the money supply in excess of the needs of commodity circulation, which causes the depreciation of the monetary unit and, consequently, the growth of commodity prices. However, even this interpretation of inflation can not be considered complete and exhaustive. Inflation, although it manifests itself in price increases, is not a purely monetary phenomenon. In other words, it can be said that inflation is a subtle socio-economic phenomenon caused by a disproportion in various spheres of the economy. At the same time, inflation is one of the most acute problems of modern economic development in virtually all countries of the world.

    What are the causes of inflation?

    Modern economists attribute the most important reasons for inflation:

  1. Disproportionality - imbalance in public spending and revenues - the so-called deficit of the state budget. Often, this deficit is covered by using a "printing machine", which leads to an increase in the money supply, not secured by the commodity mass, and, as a consequence, to inflation.
  2. Inflationally dangerous investments are often the militarization of the economy. Usually excessive military appropriations are the main cause of the chronic deficit of the state budget, as well as the increase in the public debt, for which additional emission of money is being made, i. The same notorious "printing press" is used.
  3. Imported inflation - its role increases with the growth of openness of the economy and involvement in the world economic relations of a country.
  4. Absence of a free market and competition as its component.
  5. Inflation expectations are the emergence of self-sustaining inflation. The population, entrepreneurs and enterprises are getting used to the constant increase in the price level. People demand an increase in wages and are stocking goods for future use, waiting for their rapid rise in price. In turn, producers are afraid of price increases on the part of their suppliers, lay the price of their components in the price of their goods predicted by them and, thus, rock the flywheel of inflation. A living example of such inflationary expectations we can observe in our daily lives.

Another classification of the causes of inflation, used by many Western economists, is the division into demand inflation and supply inflation.

Inflation of demand is a violation of the equilibrium between supply and demand on the part of demand. In other words, the reason for this may be an increase in government orders (for example, military forces), an increase in demand for means of production in conditions of full employment and almost full utilization of productive capacity, and an increase in the purchasing power of the population (wage growth). As a result, there is an excess of money in circulation.

Inflation of costs - rising prices due to increased production costs. The reason for this may be non-market pricing policies, economic and financial policies of the state, rising prices for raw materials, etc..

We are all well aware of the situation when, with the next increase in the minimum wage, conversations such as "Well, now everything will rise in price" or "raise wages - wait for the price increase". The type of inflation caused by the increase in wages is a kind of inflation of costs. However, in practice it is not easy to distinguish one of its species from another, because they are all closely related and constantly interact. For example, the same increase in wages can look like and how demand inflation and inflation costs.

One of the "sick spots" of inflation is that prices tend to rise quite unevenly. Some, for example, jump, others rise at a more moderate pace, and still others do not grow at all. A clear indicator of the presence or absence of inflation, its depth is the index of prices.

Price indices are relative indicators that characterize the ratio of prices over time.

There are several types of price indices, among which the most significant are consumer price indices, producer price indices and the GDP deflator. And, if the first two price indices reflect the situation in specific areas (consumption and production), the GDP deflator index is more universal, since it takes into account the overall price change in the country's economy. However, in practice, speaking about the level of inflation, due to objective factors (efficiency of calculation, monthly frequency, etc.), the consumer price index (CPI) is most often used.

Returning to history, we will say that inflation, as a rule, arose in extreme circumstances (for example, wars). Recently, it has become a "chronic disease" of the economies of many countries around the world. So, according to economists, in the last 30 years, civilized countries have entered the so-called "century of inflation". Inflation in 2-3% is already considered a normal phenomenon of market economy.

There are various criteria for the classification of inflation (rates, degree of expectations and openness, causes of occurrence, etc.).

For the common man, the closest and most tangible in everyday life is its division in terms of the rate of price growth.

In modern economic literature, depending on the pace, three main types of inflation are distinguished:

- moderate or creeping (annual growth does not exceed 10%);
  - galloping (annual growth from 10% to 200%);
  - Hyperinflation (more than 200% per year).

In other sources, four types of inflation are singled out, adding to the above also normal inflation (annual growth of 2-3%).

Let us now turn to the issue of estimating inflation. So, in practice, its main indicator is the consumer price index.

The formula for calculating the price index "crystallized" gradually on the basis of the works of various economists. And, nevertheless, the main author is considered to be Etienne Laspeyres. Of course, he was not the first economist in his generation to count the price index. The first, rather, should be considered Charles Duto, who described the model of price indices in 1738. Almost in parallel with it, the price index in 1764 was built by the Italian economist Carly - by the average formula, without the use of any weighing system.

It is interesting! In addition to the known techniques using price indices, there are also more exotic, for example, the index of "hamburger". This index was taken to assess the cost of the same products in different countries. Since hamburgers are sold almost everywhere, this product has become the basis for calculations. According to the results of calculations for 2015, it turned out that the most expensive hamburger is sold in Switzerland ($ 6.82), and the cheapest in Venezuela ($ 0.67). Despite its simplicity, the "hamburger" index proved to be an effective tool for detecting the discrepancy in the value of currencies in countries with the same level of income.

To understand the economic essence and the calculation mechanism, it is necessary to explain what the consumer price index is.

Consumer Price Index (CPI) Measures the total change in the value of a fixed set of goods and services purchased by the average consumer, i. characterizes the change in the total amount of consumer spending of the population in a certain period of time with the same amount of consumed goods and services.

This definition of the CPI assumes that it is first necessary to establish a baseline period, i.e. the starting point for changes in the value of goods and services, then to ascertain the cost of a fixed set of goods and services used in CPI calculations in the base and current periods. To obtain the price index, you should divide the cost of the set in the current period by a similar value in the reference period. Here's how this formula is expressed:

The calculation scheme given here is, of course, considerably simplified, but allows a better understanding of the calculation. Using this approach, each family can assess its "personal" inflation. To do this, it is necessary to determine the list of goods and services purchased by the family in the base period. Next, it is necessary to calculate how many in kind of specific types of goods and services were purchased. After that, knowing the prices of the basic and current periods, calculate the total value of these goods and services in comparable periods. Dividing the received result of the current year by the corresponding result of the base year, we get "personal" inflation for our family.

It should be noted that the inflation that is reported in the news releases is published by official bodies, and our personal inflation is different things. Official data show general trends in the development of the country's economy, while "personal" inflation characterizes the state of affairs in a single family.

Let's try to figure out what caused this. The fact is that the formula for calculating the inflation index, used by official bodies, is oriented to a set of goods and services that are not formed for a specific family, whereas "personal" inflation is determined based on the preferences of a single family. For example, you are a vegetarian and basically do not eat meat, therefore, your "personal" inflation will not take into account changes in prices for meat products. Or, perhaps, you are a professional bodybuilder and spend a lot on sports nutrition and vitamins. Then your "personal" inflation will strongly depend on the dynamics of prices for these goods. Now imagine how many different families in the country and all have different costs, other preferences in food and clothing. Shopping places for all are also different (shops, bazaars, network markets, etc.). The composition of the family is also different - someone lives alone, someone has five children. Someone is an inveterate smoker, and the cost of cigarettes for him is significant. How many varieties of the same shampoo or soap on the market, and the prices for them can differ at times? How, in this case, to consider the consumer price index?

In order to average all the variety of price changes in the consumer market, the statistical authorities conduct two types of sample surveys: a household consumption expenditure survey and the registration of consumer prices. We emphasize that both these surveys are selective, which corresponds to the requirements of international standards for statistical calculations.

As for the household expenditure survey, the statistical bodies offer households (in other words, families whose members divide the "common pot") fill out a questionnaire, where all the family purchases will be indicated. Then the received information is generalized, averaged and spread to the entire population. In other words, the sampling methodology assumes that households in a sample survey, on average, spend the same expenses as the rest of the population.

Once again, we draw attention to the fact that such a survey methodology is universally recognized and meets international standards. What does this mean? And what the majority of developed countries think in this way is, say, the same Europe and many CIS countries. An alternative method can be the definition of expenditure items based on the statistics of the system of national accounts or the structure of retail turnover and services, but the general essence does not change from this.

Further, on the basis of information on household expenditures, a specific gravity structure is developed to calculate the indices, i.e. determines the share of costs for the acquisition of each product and service in the total costs of the population. Calculation of specific gravities is necessary for the use of the above modified Laspeyres formula, since it facilitates the calculation of the CPI due to the replacement of indicators in physical terms with specific indicators.

Now we turn to the method of determining average prices for the calculation of indices. Here, too, there is a proven international practice for years, the most important principles of which are reflected in the basic document "Guide to the Consumer Price Index: Theory and Practice" (IMF, OECD, Eurostat, UNECE, World Bank and ILO, English version 2004 and Russian-language - 2007 ).

We understand that to survey the diversity of prices in the market is a utopia, therefore, as in the case of household expenditures, statistics again turn to a selective survey. So, the territories, trade and service objects (the same shops, bazaars, etc.), goods with specific characteristics (for example, Nestle milk, fat content 3.2% in soft packaging) are selectively determined. Further it is a painstaking job to register prices for these goods and services.

It would seem that everything is simple. But this is only at first glance. Often you have to hear the phrase: "Where does the statistics take such prices?", "I buy much more", etc. The answer is simple, the statistics in the calculations use average prices. This means that not only high prices should be taken into account, but also low prices if part of the population purchases at these prices.

The skeptics, who, for example, quote the phrase "the average temperature in the hospital", you can answer that calculating average prices is a generally accepted approach, and scolding statisticians for using the averages method is like scolding a doctor for something that he treats a bacterial infection with antibiotics, or a driver for driving a steering wheel while driving a turn. The calculation of average prices is carried out by the statistics of all countries, where one way or another calculate the consumer price index.

It should also be noted that the statistics use the term "comparable average price". This means that the average price is calculated on the basis of a certain number of prices registered in the same retail facilities for the same goods in two comparable periods. For example, if to calculate the average comparable price for milk in Tashkent, initially the price of draft milk with a fat content of about 3.0-3.2% was registered at the Chorsu market with the seller F.S. Abdullaev, then next time the price is registered there and on the same kind of milk, i.e. no other factors (another bazaar or store, other quality milk, etc.) should not affect the size of the price. This is an important fundamental principle prescribed by the international standard for tracking price dynamics. The number of such registered prices for calculating the average comparable price of a single product (in our example this milk) can reach 20, 30 or more for each district of Tashkent. And if in one shopping center, milk can be chosen for registration, sold at the market (at a price of 3 thousand soums per liter), then in another, the price of packaged milk in a solid carton can be tracked (at a price of 8 thousand Sum), and in the third - packed in soft containers (at a price of 6,5 thousand UZS), etc.
While the majority of the population can buy goods every time in different places (for example, in a month in a store next door, in another month at a wholesale fair, next time in a large supermarket, etc.). Therefore, when calculating "personal" inflation, it is necessary to take into account this fact and to exclude as much as possible the "non-inflation factors" that affect the price (another grade, type, store, packaging, etc.).

However, let us return to the calculations. Having obtained data on average comparable prices for the periods being compared, as well as information on the structure of household expenditures, direct calculation of the indices is carried out. For ease of understanding, we can say that the consumer price index is defined as the weighted average of all the variety of price changes for goods and services. In other words, not all the price changes are combined and are divided into their number (simple arithmetic mean value), but are generalized on the basis of the share (specific weight) of each product and service in the total expenditures of the population (weighted average).

   How does inflation in our country count?

The system of calculation of consumer price indices began to be introduced in Uzbekistan since 1994 with the technical assistance of the International Monetary Fund (IMF). Initially (1994), the set of goods and services for settlements consisted of 285 items. Gradually, as the situation on the market changed, this list expanded: in 2012 it consisted of 305 positions, in 2017 - from 350 positions, starting from 2018, the set of goods and services includes 386 items, of which 112 - food, 206 - non-food products and 68 - services. It should be noted that the set includes not only socially important goods and services (bread, flour, butter, meat, utility services, etc.), but also non-mandatory goods (for example, cars, gasoline, jewelry, agricultural implements and etc.).

The indices are calculated using the modified Laspeyres formula on the basis of data on the structure of household consumption expenditures and the calculated changes in the average of comparable prices. Periodicity of calculations - monthly.

In calculating the CPI, in addition to the price factor (ie, the actual change in the prices of goods and services), the specific weight of specific goods and services influences. Thus, statistics aggregate (average) in the consumer price index their movement to the whole variety of goods and services throughout the country. 

As for the calculation methodology, the domestic statistics do not stand still and are constantly improving the settlement mechanism in order to reflect the inflationary processes taking place in the country as objectively as possible. The significance of the inflation indicator is also evidenced by the fact that over the past year alone, Decrees No. PP-3082 of June 23, 2017, "On Urgent Measures to Reliably Provide the Population with the Main Types of Socially Significant Foodstuffs," and PP-3272 dated September 13, 2017 year "On measures to further improve monetary policy", including a set of measures to further improve monetary policy in the period 2017-2021 and a phased transition to the regime of inflation targeting IAOD. Both these documents imply the adoption of a set of measures aimed at radically improving the methodology for the formation of the CPI. In this regard, the State Statistics Committee of the Republic of Uzbekistan has developed an updated methodology for monitoring consumer prices and CPI calculations, which provides for the improvement of the sampling mechanism (territories, objects of observation, goods and services) and the harmonization of CPI calculation methods for seasonal food products. The list of goods and services for monitoring prices was expanded by 36 items. There were added goods such as cereal for baby food, frozen fish, processed and sausage cheeses, foam, cream, shaving gel and others..

   Results of 2017:

In 2017, inflation was 14.4%, which is significantly higher than the level of other CIS countries.

Is it good or bad? For any resident of the country, inflation is almost always a negative factor (the exception is probably the resellers speculating on the market situation). However, not everything is as bad as it seems at first glance. The sharp decrease in the rate of inflation has its drawbacks. Too low inflation is no less dangerous for the economy than high. In what way is this expressed? If prices do not rise, the demand of the population decreases, people buy less, because tomorrow the prices will remain at the same level and it becomes more profitable to save money than to invest. In addition, with a sharp decrease in the rate of price growth, many enterprises are experiencing difficulties, because their economic model loses its effectiveness, they are already accustomed to "inflationary feeding". Therefore, too low inflation is dangerous "cooling" of the economy. With a sharp decline in its rates, it is especially difficult for companies that have long-term loans taken at relatively high rates. If prices and demand for their products do not increase, then servicing such loans becomes more difficult and more difficult day by day.

A moderate increase in prices in this situation not only increases domestic demand, but also stimulates investment, raises the level of production, reduces unemployment. Therefore, some countries even resort to an insignificant acceleration of the rate of inflation to stimulate the economy.

At the same time, too fast and, most importantly, unpredictable, the price increase entails social, economic instability and negative consequences, we believe, is known to all.

Therefore, in the modern world, economists are increasingly talking about the importance of not so much the magnitude of inflation as its predictability, which would allow building real economic plans.

Liberalization of monetary policy is an integral part of our country's reforms, and we are not the first and not the last who faced this problem. It is still early to speak about the results, but the need for currency reform has been brewing for a long time, and much remains to be done in this direction.

What awaits us in 2018? What will become more expensive?

These questions are asked by each of us.

Like any reform, the devaluation and liberalization of monetary policy is a difficult process for the economy of any country.

According to the IMF, inflation in the republic in 2018 will be 14.3%, the Central Bank predicts it in the range of 11.5-13.5%.

The rate of inflation will depend on many factors, in particular:

  • from the price increase (including regulated prices) for the main types of goods and services. Some of them are already known (for example, in some regions it is a fee for keeping children in pre-school establishments, and there are also announced tariff increases for electricity and gas, postal and telephone communication), others will depend on the relevant price regulation bodies (fees for other types of communal services, travel in urban transport, prices for gasoline, bread, flour, etc.), others will be determined by the pricing policy of individual companies (this primarily applies to cellular and Internet services, air and railway services transport arrangements), the fourth - on the price situation in the countries where the imported goods, the fifth - from elementary decency sellers in the market;
  • also expected to increase prices for construction materials associated with the implementation of Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 1025 of December 28, 2017 "On measures to further improve the system of supply and sale of natural gas and electricity";
  • the exchange rate dynamics of the national currency, the monetary policy pursued will also influence the inflationary processes in the country and, accordingly, will lead either to an even higher price increase or to a decrease in the rates of their growth;
  • Inflationary expectations of the population and enterprises regarding the forthcoming price increase may have a significant impact.

Undoubtedly, this is not the whole list of possible scenarios for the development of inflationary processes in Uzbekistan for 2018. But after all, inflation is a multifaceted phenomenon and it is rather difficult to forecast here. But statistics, as a "mirror of the economy," should objectively reflect the existing results. So, as they say, wait and see. We hope that these reflections will be useful to you and at least slightly open the veil of "the mystery of inflation calculations."

Tugmani bosing Tinglash