Almost everyone, even the least economically educated person, knows about the difference between devaluation and inflation. Moreover, some believe that the difference between these concepts is that devaluation is a decrease in the exchange rate, and inflation is an increase in prices, but this is only the tip of the iceberg.
Differences between devaluation and inflation
Economic science does not give devaluation and inflation an absolutely precise and unified concept. In general terms, devaluation is a rapid, strong and long-term depreciation of one currency against another currency. In other words, devaluation is the transition of a weaker currency to a completely new valuation level in relation to a currency that is stronger than it. You should also distinguish between exchange rate fluctuations and real devaluation.
The factors causing fluctuations in the exchange rate are considered the purchasing property of the national currency, as well as the state of supply and demand for it.
Inflation is a more complex concept, which is the process of decreasing the value of a currency, as a result of which, after a while, a smaller volume of services and goods can be purchased for the same amount. In reality, inflation is characterized by an increase in consumer prices and the "erosion" of people's savings. With its presence in the economy of the state, money is rapidly falling in price almost every day.
The relationship between devaluation and inflation
Devaluation, which occurs conditionally today, contributes to inflation, which will happen conditionally tomorrow. But which one? A large number of consumer goods are purchased abroad, so when the ruble falls, suppliers' costs increase significantly. However, since imported goods now (in contrast to the Soviet period) do not make up 100% of domestic consumption, suppliers competing with Russian producers and even among themselves often take part of the increase in costs on themselves, thereby reducing their profits.
Thanks to suppliers, a quick and automatic rise in prices for imported goods in the event of devaluation is excluded.
It is much easier to react to a short-term devaluation than to keep an eye on sluggish inflation - an increase in prices by 0.5-1.5% monthly does not significantly change anything, but a sharp rise in any currency should make you think. In case of devaluation, some traders try to make money on the increased rate, talking about lost savings, but implying a profit that they did not manage to get in the planned volume. Therefore, economists argue that there is no reason to be afraid of devaluation, since it takes practically nothing from people - unlike inflation, which quickly or slowly dissolves all monetary savings accumulated by overwork.
