Structural inflation

Structural inflation
See also
Cost inflation Demand shock Stockout costs Market dynamics International division of labor Austrian business cycle theory Merger Natural rate of unemployment Price risk

Structural inflation is inflation that results from changes in the structure of demand and supply. Under the influence of changes in the structure of demand and supply, some branches will experience an increase in demand for their products, while in the case of others, this demand will fall. If prices and wages in branches reducing their production will be inflexible towards this reduction, while prices and wages in branches increasing production will increase, then the overall level of both prices and wages in the economy will grow. The discussed phenomenon will become stronger when the supply will be inflexible and will not be able to adapt immediately to the changes taking place.

The main reasons

Thus, structural inflation arises when producers can not adapt their production structure in an efficient manner in response to changes in the structure of the economy. These changes may concern:

1. demand for the product,
2. its production technology,
3. competition for which producers stand.

The discussed inflation may also appear when the general structure of what the consumers, companies or even the government are demanding will change suddenly and producers will not be able to easily change the structure of resource involvement, and thus the structure of production itself. In addition, it can also be triggered by implementing significant innovation. changes in the structure of the economy cause the emergence of strategic deficiencies and the emergence of the so-called bottlenecks in supply channels. If the supply for any good suddenly increases and it will be such a bottleneck, its price it will also be higher, and this increase will be transferred to the prices of many products for which it is needed.

Example

Rapid structural changes in the economy may lead to both acceleration of structural inflation and the increase in structural unemployment connected with it. One example of such a situation is the specific "North-South" division that occurred in the UK economy in the second half of the eighties. At the same time, when the northern regions of the country struggled with the problem of high structural unemployment, caused by the continuing collapse of traditional industries, there were large surpluses in demand in the southern regions. This caused a rapid increase in income of various groups of people and enterprises. Due to the fact that many prices and wages are set at a uniform level throughout the country, inflation that initially occurred in the south also spread very quickly to the north.

References

• Olivera, J. H. (1964). On Structural Inflation and Latin-American'Structuralism'. Oxford economic papers, 321-332.
• Argy, V. (1970). Structural inflation in developing countries. Oxford Economic Papers, 22(1), 73-85.
• Yeldan, A. E. (1993). Conflicting interests and structural inflation: Turkey, 1980-1990. The Pakistan Development Review, 303-327.