Causes Of Inflation In Different Countries

Introduction. Average inflation rate in diffirent countries during the period 2005 – Countries with high inflation rate in european monetary union. Countries with high inflation rate outside emu. Conclusion. References.

The aim of the work: to investigate inflation and its determinants of inflation in other countries.

1. to present the causes of inflation in different countries;

The results are the presented reasons for inflation in different countries.

Considering countries inflation, unemployment and saving rates, also money supply growth, GDP, GDP deflator and real interest rates. Based on the data from the World Bank the countries were grouped in two groups: the ones that are members of European Monetary Union and the ones that are not. Average was calculated for each country in period of ten years from 2005 to 2014. All the countries are analyzed using data of these 10 years. Analysis is based on statistical data collected in Annexes.

In 2014 Estonia had highest inflation rate in EU of 2%. Average inflation rate within 10 years period was 5% (Table 1). Though, this rate is not the highest in its history. Supreme increase in inflation level occurred in 2007 and was recorded 11.5%. Real interest rates were decreasing, and people started to borrow more money, and to spend more money, causing economy to grow and inflation to increase. Growth in money supply started to decrease and in 2007 reached 10.3% from 25.5% in 2005. Later on with diminished inflation, money supply also decreased and became negative in 2009. Real interest rates increased then almost three times more and consumers started to save money and saving rate increased to 23.9% in 2009. This can be seen a positive correlation between money supply and inflation: less money in circulation leads to lower inflation, because people are spending less and general price level remains the same or decreases.