Why all prices are rising

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why are prices rising, rising prices, rising real estate prices, rising commodity prices, rising food prices, why products are becoming more expensive, why real estate is becoming more expensive, how does the key rate affect prices

Over the past few years, prices in Russia have increased by an average of 2 – 13 percent per year, some categories of goods have risen even more.

Many people, feeling the pressure of the effects of price increases, wonder why prices are rising and who is raising them. Consider the main reasons for the rise in prices in General, as well as why rising prices for real estate, food and other goods in particular.

Why prices are constantly rising

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The growth of the average General level of prices for goods and services is called inflation. This phenomenon is considered normal for a market economy. The question is the scope of the process.

It is also important to understand that inflation reflects the average, that is, if the official inflation rate was 2%, it does not mean that all goods have risen by 2%. For example, gasoline could rise by 10%, kefir – by 5%, and real estate could fall by 3%.

The inflation rate in Russia, as in other countries, is determined on the basis of the consumer price index, which, in turn, is calculated under the influence of the prices of services and goods from the consumer basket, which is determined by the state.

The consumer basket includes goods and services consumed by the average person per month or per year. At the same time, it includes not only food products, but also non-food ones.

Thus, the Federal state statistics service, calculating inflation, finds the average price change in the country. However, this information does not answer the main question – why prices are constantly rising?

The rise in prices is due to various reasons, which are almost impossible to predict. Consider the main ones:

  • Growth in demand. The increase in demand for a particular product or service can be influenced by both an increase in earnings, which allows spending more, and various external factors (for example, during a rainy summer, the demand for raincoats and umbrellas increases)
  • Supply reduction. The reduction in the number of goods and services offered by suppliers with constant demand inevitably leads to their deficit and, accordingly, to an increase in prices, since the lack of any product or service makes people pay more. For example, after the crisis of 2014, when due to sanctions in Russia ceased to import cheese from Europe, and Russian capacity was not enough to produce cheese of the same quality and in the same volumes as before, there was a sharp rise in prices for this product.
  • Inflationary expectation. Oddly enough, this factor also affects prices. This factor is especially strong in Russia, as many people who have survived the deficit, which was observed in the Soviet years, at the risk of rising prices tend to stock up for the future. An example is the appearance of a rumor about the increase in prices for buckwheat, when the population began to buy this product EN masse, which caused a temporary shortage of this product, which gave producers a signal to increase prices.

Of course, in addition to the above, there are many other reasons why the prices of certain goods and services are rising.

Why food prices are rising

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As a rule, the majority of people, especially from not especially well-off strata of the population, are most interested in the question of who raises the price of food. Of course, sellers and producers are blamed for the increase in food prices. However, in most cases, the rise in prices is caused not only by the greed of sellers and manufacturers, but also by the laws of the market and objective reasons. Consider some of them.

  • Lean year. For example, because of the poor harvest year, the country is poorly ripened oats. It is not the most popular product, but its lack will cause a chain reaction. The increase in feed oats prices will increase feed prices, which will lead to higher costs of poultry and animals. Increased costs, farmers will begin to compensate by increasing the prices of chicken, eggs, milk and other products produced on farms. This will lead to an increase in the price of cheese, sausage and other products, although initially only the price of oats increased.
  • The situation in international relations. Participation in trade unions, increase in imports and exports, change in import duties – all this affects the prices of products on the market. For example, the growth of customs duties has a direct impact on the price of goods sold in Russia, as well as their quantity, the greater the volume of imported goods from abroad, the stronger the competition in the market, which constrains the increase in prices. Conversely, the fewer producers offering their products, the higher the risk of price increases.
  • Changes in the policy of granting state benefits. This item, at most, refers to agriculture. This is due to the fact that most sectors of agriculture are low-profitable or even unprofitable, so the state provides them with various tax benefits and subsidies. If these subsidies are eliminated, producers will have to compensate by raising prices.

Because of the constant increase in prices, the population has a question, why the state does not prevent this? The fact is that state intervention in the market economy is an extreme measure, direct intervention of the state and the establishment of regulatory prices, can completely destroy competition. This is due to the fact that only the largest enterprises will be able to continue working in conditions of legislative price restrictions, which will cause monopolization of markets and shortage of products due to lack of production capacity. This will lead to the growth of the shadow economy and the black market. Therefore, state intervention in economic processes will do more harm than good.

Why are property prices rising

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Real estate prices in Russia are constantly rising, except for some temporary setbacks. Consider the main reasons for the rise in housing prices:

  • Growth in demand. The increase in wages of the population leads to an increase in demand for real estate, which in turn leads to an increase in prices for it.
  • Population growth. And not so much natural, but due to migration. For this reason, you can see inflated prices in St. Petersburg, Moscow and other major cities. The constant migration of nonresident residents is one of the most important reasons for the rise in real estate prices in Moscow.
  • Change in legislation. For example, the ban on developers to attract funds of shareholders in the construction and the need to Finance their work at the expense of credit funds – this forces developers to lay the cost of servicing debt obligations in the cost of real estate.
  • Interest rate. On the price of real estate more than other goods, affects the interest rate, as due to the high cost of real estate, transactions with it, mainly made using borrowed funds. Accordingly, the reduction of the key rate makes mortgage loans more affordable, which leads to an increase in demand for invisibility. The growth of demand has an impact on the cost of housing.
  • The emergence of large networks and enterprises in the region leads to an increase in real estate prices.

Devaluation

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Another important factor affecting the growth of prices is the decline in the value of the national currency relative to foreign currencies, or devaluation.

This factor affects the price of all imported goods. These goods, in turn, affect the entire market for similar goods, and then at the General level of prices.

However, it is also important to understand the reasons why foreign exchange rates are rising and the ruble is falling. There are several reasons for this.

  • Oil price. Despite the statements of various authorities, the Russian economy is largely dependent on oil exports, so its prices often affect the ruble. Accordingly, a strong drop in oil prices can negatively affect the ruble.
  • International politics. The deterioration of relations with countries with which there is active international trade can have a negative impact on the trade balance. The deterioration of relations between countries also leads to an outflow of investors. These actions reduce the demand for the ruble, which in turn reduces its rate.
  • Interest rate. The reduction of the key rate of the Central Bank makes deposits in Russian rubles less attractive, and accordingly, the investment attractiveness of the ruble decreases, which negatively affects its rate.
  • GDP and other macroeconomic indicators. If the country's economy declines or shows unstable indicators, the demand for the national currency from external investors decreases.
  • Inflationary expectation. If international analysts predict a high level of inflation in Russia, the risks for international investors increase, which leads to a decrease in demand for the Russian currency, respectively, the ruble falls.

Thus, the ruble exchange rate against the us dollar and other foreign currencies depends on many factors. The ruble itself, in turn, affects the overall rate of inflation.

Important! Many experts note that inflation at the level of 3-5% per year is a sign of normal development of the market economy. The inflation rate above 6% may indicate the emergence of tension and crisis phenomena.

Conclusion

The rise in prices is due to a number of reasons. Objective factors, both internal, including the actions of citizens and public authorities, and external, depending on international relations, have an important impact on this process.

It is important to understand that inflation itself is not a negative factor. Inflation is inevitable. The main thing is to be able to correctly assess its level and respond to it correctly.

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