Contents.
What is inflation?
Inflation is an increase in the general price level over time, which reflects the depreciation of the currency and leads to a decrease in the purchasing power of the population. In other words, when inflation increases, money loses its value, and fewer goods or services can be purchased for the same amount of money.
Here's a simple example. Let's say that in early 2020, a person decided to save 1000 hryvnias, and diesel fuel then cost 26 hryvnias per liter. So, in January 2020, the saved thousand was converted into 38 liters of fuel. In five years, prices have risen, and at the end of 2024, the average cost of diesel was 52 UAH per liter, so now only 19 liters can be purchased for 1000 UAH. The amount is the same, but there are half as many goods.
Inflationary processes last for a certain period and have different consequences for society. For example, moderate inflation encourages people to spend money rather than save it, thus stimulating the economy. Meanwhile, high or uncontrolled depreciation of money has a negative impact on the financial system, causing a decline in living standards and instability in society.
Types and types of inflation
Inflation is an indicator of the depreciation of a national currency, such as the Ukrainian hryvnia. It is classified depending on the factors and rate of growth. Inflation is divided into the following types by its rate:
- creeping, or moderate, inflation is characterized by a gradual increase in prices over time, not exceeding 10% per year;
- galloping inflation is a rapid depreciation of money and a drop in the purchasing power of the population in the range of 10-50% annually;
- hyperinflation - a frantic and destructive reduction in the price of money, which leads to financial chaos, can reach 100%, 200%, or even 1000% per year.
Only the first level is considered safe and stable. The second requires government regulation, and the third requires radical solutions, including default.
Experts also distinguish the following types of inflation:
- by duration: short-term, caused by a sudden increase in demand and shortage of goods, and long-term, caused by money printing;
- by the degree of predictability: predictable, or foreseen, to which all economic agents could prepare, and unforeseen, to which they did not have time to adapt their actions;
- by balance: balanced - when prices grow gradually and evenly, and unbalanced - when they change at different rates;
- by coverage: general (national), which applies to all goods and services, and local, which covers certain sectors of the economy.
There is also hidden inflation, which is an artificial limitation of consumer demand due to a shortage of goods in order to keep prices from rising.
Inflation: essence, causes, factors, consequences
Price increases are usually caused by an increase in aggregate demand and production costs. Demand inflation is associated with economic growth or additional money issuance, while supply inflation is associated with a shortage of goods.
The factors that provoke the phenomenon include:
- increased demand and reduced supply;
- fall of the national currency: due to a decrease in exports, economic shocks, war, etc;
- artificially high inflation expectations.
The consequences can be both negative and positive, namely:
- negative: a decrease in purchasing power, economic uncertainty, reduced investment, rising cost of living, depreciation of the national currency against other currencies;
- positive (in the context of moderate inflation): reduction of the debt burden, growth of wages, stimulation of consumption and investment.
The consequences are influenced by many factors: inflation levels and types, the overall state of the economy, and the policies of the government and the National Bank.
How to protect yourself from inflation?
You can protect yourself from any financial fluctuations in advance. The easiest way is to convert funds into a stable foreign currency: dollars, euros, or British pounds. Bank deposits with a rate of return that exceeds inflation are also in demand.
A deposit is an effective financial instrument to partially protect funds from depreciation. If the interest rate is higher than or equal to the inflation rate, the real value of money remains unchanged or even increases. If a significant devaluation of the national currency is expected, it is recommended to keep part of the funds on foreign currency deposits. For example, Globus Plus Bank offers a fixed rate, both in foreign currency and hryvnia, which allows you to predict the exact amount of income for a certain period. Alternatively, you can consider other instruments: investments in precious metals, securities, and real estate.
The GlobusPlus mobile application offers a wide range of financial services. In the app, you can quickly make a deposit in hryvnia at 13.5% per annum, or choose another deposit currency. The Globus Plus app also offers a favorable cashback, namely up to 20% for selected categories. To receive it, it is enough to have an active GlobusPlus card.
The National Bank of Ukraine recently released its current macroeconomic forecast for inflation expectations. Based on internal and external economic factors, the regulator forecasts inflation to rise in the first half of 2025 and further slow down to 8.4% by the end of the year. Given these prospects, protecting funds from financial fluctuations is still a pressing issue for Ukrainians. Opening a bank deposit remains a reliable way to do so - it can be done in a few clicks in the GlobusPlus app. It is also recommended to diversify risks, namely, to transfer part of the savings into assets that are less susceptible to depreciation, such as the dollar or the euro.
