Artificial price restraint, also known as price regulation, can lead to certain economic consequences that can negatively affect the market and consumers. The main prerequisite contributing to the adoption of such a decision for the state is a proactive approach inflation.
What is the main negative for the economy from such a measure?
The price increase itself does not occur when there is a balance between demand and consumption in the market. This process is mainly due to the excess of money supply in the economy over the goods consumed within it. And so, for example, there is a situation when consumer demand is growing, but supply either stands still or falls altogether. This encourages the seller or manufacturer to raise prices to maintain the trade balance.
Here it is necessary to understand the following. Demand is provided by the population who work at the same enterprises or organizations that pay them wages, which is the basis for spending and market demand. If wages are growing at an increased rate, above what the economy provides (products/services), then demand will be outstripping.
And in such conditions, the manufacturer needs to raise prices for their products in order to maintain a healthy economic atmosphere in their work. After all, the share of the wage fund in some organizations is rather large and sometimes exceeds 50% of total costs. That is, if this balance is artificially disrupted, then the economy of this business will generate losses, which in turn will be reflected in the tax base, which is the basis for replenishing the state budget.
But, in order not to show their unprofitability in the current conditions, organizations begin to hide their overspending (losses) in their balance sheets, which can create toxic, airy assets. And it turns out that, at first glance, the situation is that prices are not rising and organizations are working at break-even level.
But in fact, for some reason, the real sector is constantly growing in need of money. there is profit, but there is no money.
In other words, in conditions of artificial price restraint, when the market dictates the opposite, the real assets of the economy are pumped with air, which in the future will still have to be "blown away". The most "sure" and painless way to remove responsibility from everyone is, of course, devaluation.
Therefore, sometimes when some criticize the Central Bank for raising the discount rate, they simply do not understand that it is trying, thus, to extinguish inflation in a market way, and not artificially, unlike some other post-Soviet countries.
