Macroeconomic instability: inflation

Abstract

In the period from 1996 to 2021, the consumer price index (CPI) in Ukraine grew at an average annual rate of 112.9%. This is galloping inflation. The share of monetary factors in the formation of the CPI within the analyzed period did not exceed 3%. The share of non-monetary factors was 81.4%. The greatest influence on the formation of the CPI is exerted by the prices of agricultural products and tariffs for housing and communal services, as they account for 77.4% of the variability of the functional feature (CPI). At the same time, the tariffs of housing and communal services account for more than 50% of the impact. Industrial and agricultural prices accounted for almost a third of the functional feature variation (CPI). The identified links and their quantitative characteristics indicate that the Ukrainian economy is dominated by cost inflation. Its main reasons were rising prices for industrial goods, especially energy. The resumption of open large-scale Russian military aggression against Ukraine has become an additional factor in inflation: occupation of territories, destruction of production and infrastructure facilities, rupture of logistics chains, shock growth of consumer demand in regions of refugees concentration, increase in production costs, etc., caused a sharp jump in prices for food, fuel, transport services, etc. The hostilities led to an unplanned increase in the state budget deficit. To cover it, the government sold domestic government bonds. The issue of bonds is accompanied by the issue of money. In the short run, inflationary pressures of money supply are inferior to non-monetary factors. However, as soon as this money enters the consumer market, it will provoke a new round of inflation growth. Keywords: inflation, Paasche index, consumer price index, monetary factors, non-monetary factors, cost inflation, war, budget deficit, money issue.