Fighting Inflation

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bayern20
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Fighting Inflation

#1 Post by bayern20 » Apr 09 2006

How do you fight inflation in the game?

My unemployment is very very low. The inflation just keeps going up and up though.

Il Duce
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#2 Post by Il Duce » Apr 09 2006

Well, that IS the question, isn't it?

It's been asked before, and depending on which update was current there was or wasn't a satisfactory answer.

I could suggest that you try to tweak down your markups, if you are using them, but this is pure superstition on my part (although consumer prices are a key inflation metric...). Dunno if the current update fixed what seemed to be a death-spiral of inflation seen in previous updates. Lowering taxes a bit might help too - again easing back on consumer outflows and biz-expenses. Whatever you do, don't thrash: the model is actually pretty sensitive. Do one thing and study the effect for a few [like ten to fifteen] game-days. When inflation does ease, it seems to ease s-l--o--w---l---y. Really slowly. All I really care about is if I have a liquid and positive cash flow.

And some would argue that inflation rates as high as 9 to 11% don't really seem to have much effect. Like me. But then I'm not too much of a purist about the econ model. I'm sure you will hear some widely differing opinions past this, but I thought I'd pour some gasoline on the fire to kick things off.
Colorless green ideas sleep furiously [but otherwise, they do not worry and are happy].

Journier
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#3 Post by Journier » Apr 10 2006

stop research, that usually kills off inflation

in world scenario with all my research centers shut down, i have a -12% inflation usually.

bayern20
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#4 Post by bayern20 » Apr 12 2006

I decided to wage war on Montenegro to relieve the situation, and funnily enough, my inflation is going down.

If my citizens ask why, I'll have to say, that the war was needed to fight inflation ;) lol

Eric Larsen
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Curbing Inflation

#5 Post by Eric Larsen » Apr 19 2006

If you have spiraling high inflation then you need to cool down your economy. Reducing research investment will help. Raising income taxes on all 3 groups will help as well as raising corporate taxes. That will help curb demand and employment. I also like to raise property tax and the activities tax to curb demand. Also don't forget to reduce your expenditures on social spending. Reduce your efficiency expenditures and raise your domestic markups to cool down demand. I had inflation up to 9.5% and did these things and got down to 4.8% before easing off and allowing inflation to rise slowly again. I only added about .2% to my unemployment so the rebound worked well.

Inflation is all about demand for products. Reduce your demand and your inflation will reduce as well.
Thanks,

Eric Larsen

The_Blind_One
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Re: Curbing Inflation

#6 Post by The_Blind_One » Apr 20 2006

Eric Larsen wrote:If you have spiraling high inflation then you need to cool down your economy. Reducing research investment will help. Raising income taxes on all 3 groups will help as well as raising corporate taxes. That will help curb demand and employment. I also like to raise property tax and the activities tax to curb demand. Also don't forget to reduce your expenditures on social spending. Reduce your efficiency expenditures and raise your domestic markups to cool down demand. I had inflation up to 9.5% and did these things and got down to 4.8% before easing off and allowing inflation to rise slowly again. I only added about .2% to my unemployment so the rebound worked well.

Inflation is all about demand for products. Reduce your demand and your inflation will reduce as well.
Thanks,

Eric Larsen
You're wrong, it's not all about demand, it's all about GDP/c base figures wich can be taken from logfiles for every turn. Increase the rate at wich ur gdp/c grows and u can instantly link that too more inflation and less unemployment. Fiddling with the taxes only slightly change the GDP/c base number and inflation behavior. Fiddling with taxes will just change the way money flows go in your country, afterall ur controlling the state aswell as the market, so if u increase taxes, the market gets less money, and that cuts u back aswell. So the knive cuts two sides in this game.

Decreasing taxes will indeed increase consumer demand, but only till a point. I noticed that u can get away with a tax % of about 35.5 without ANY drop in consumer demand for goods. So a tax rate of 0% or 35.5% equals the same amount of demand for goods. Naturally setting a 35.5 actually GAINS u 35.5% expendible income (wich u redirect into ur economy making it even bigger), also funny is that the higher ur taxes go the more negative it effects ur economy in the long run. Higher taxes naturally curb the growth factor of ur gdp/c (and can even drive it into the negatives) but higher taxes don't neccesarely mean more income, afterall the knive cuts on two sides. I found that taxes over 60% or utterly useless. What u gain in taxes is lost in consumer demand for goods. You're best bet is to find that perfect sweet spot between consumer demand and goverment taxing (note: the sweetspot actually changes with time and is not consistent)

wow I drifted ofcourse :D anyways, I advice anyone to let their economy grow on average about $5 a day (for wealthy nations) or about $2-3 for the poor nations. Anything above that will cause rampant inflation. It seems an economic expansion of about 4.5% is do-able without large inflation. Real world economic expansion is often about 10%. The game can't do 10% because inflation is normally integrated into economic expansion. If the US inflation is 5% and the real economic growth is 5% then the economic expansion = 10% (5% + 5%) the ''nominal gdp'' will have grown with 10% while the economic growth maybe only 5%.
Practictly speaking, everything costs 5% more then it did last year, but u earn 10% more aswell so u can really buy 5% more goods...hence the 5% economic growth :lol:

Inflation isn't really integrated into SR2010 because nobody knows how to define or to really explain how inflation works. So BG team just took the easiest form they could find. Philips-curve inflation, old and out-dated but not an unproven theory. 8)

BigStone
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Re: Curbing Inflation

#7 Post by BigStone » Apr 20 2006

The_Blind_One wrote:Inflation isn't really integrated into SR2010 because nobody knows how to define or to really explain how inflation works.
Hmm.. we have one currency in the game .. so i think it only depends on
domestic markup and GDP/c....
NO MORE NOISY FISH [unless they are green & furiously]
I HAVE STILL A FISH IN MY EAR

Eric Larsen
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It's All about Demand

#8 Post by Eric Larsen » May 16 2006

The_Blind_One wrote:You're wrong, it's not all about demand, it's all about GDP/c base figures wich can be taken from logfiles for every turn. Increase the rate at wich ur gdp/c grows and u can instantly link that too more inflation and less unemployment.
The_Blind_One,
You are wrong because inflation is directly and inexorably linked to domestic product demand. If demand grows so does your inflation, if demand decreases so does your inflation. The GDP/c figure is nothing but the result of a growing economy or a shrinking one based upon your population. It does not drive inflation although an increasing GDP/c figure will increase demand and a shrinking one will reduce demand. However you can decrease demand with rising GDP/c by raising domestic markup thereby reducing demand. You can increase demand with a shrinking GDP/c by reducing domestic markup. You can also raise GDP/c by reducing immigration or cutting medical investment thereby reducing the birthrate/deathrate growth.

GDP/c is not a driver of the economy, it is driven by the economy. It is not the all important economic indicator you seem to think. It all comes down to domestic demand and it's increase or decrease. Inflation is all about rising prices just like our oil and gas prices now experience.
Thanks,

Eric Larsen

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bergsjaeger
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#9 Post by bergsjaeger » May 16 2006

Inflation is nothing but the decrease value of the money being used. The more it goes up the less of value the money is. Hence more money is require to purchase.
In war destroy everything even the livestock.

CaptainJack
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Re: Fighting Inflation

#10 Post by CaptainJack » Sep 13 2006

bayern20 wrote:How do you fight inflation in the game?

My unemployment is very very low. The inflation just keeps going up and up though.
The only thing you could do is
1) don't bother with inflation and charge more your people to let them bear it and also put all investment aero, let your people bear them all.
2)adjust your production to 100% of demand. The inflation will be back 5% and the unemployment will be around 4%.

moondrift
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#11 Post by moondrift » Sep 19 2006

so what is a healthy inflation rate? I try to keep mine at around 2% is this too low or should i go lower? If your inflation goes into negative figures does this cool off demand as people won't buy something today as they'll wait for prices to go down?

I fight inflation with savage taxation and brutal cuts in social spending seems to work for me, people don't like it but as i'm playing dictator or communist at mo it doesn't matter :wink:

Il Duce
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#12 Post by Il Duce » Sep 19 2006

Functional definitions perhaps work best, as region and continental distinctions make generalizing about inflation difficult. So try this -

1) do you have a positive cash flow (after building at more or less 100 % capacity and this also includes roads and facilities as well as military units)?

2) do you have a positive and moderately improving DAR (sufficient to ignore elections if you are a democracy)?

3) are you self sufficient in all commodities?

4) do you have sufficient immigrant inflows to support your reserves?

5) do you have one or more substantially competitive commodities that you can sell (production costs at parity or below WM rates)

6) can you tolerate a sustained defcon 3 economic load?

If so - then your inflation rate is not too important (and it will probably be below 6% or so).

It is entirely possible to have a falling inflation rate with a simultaneously rising or static GDP (I don't care about economic theory here, we're just talking about the game's context).

As a baseline exercise - turn off immigrations (put the fee to max), set social to the recommended, and identify the point at which production quotas, markups and tax rate still result in both a positive DAR and a falling GDP (this is a curve) - and a small positive cash flow. It takes a few game days to stabilize after major adjustments, so allocate a month or so to this - save frequently, as this is all speculative testing.

You might be surprised at how high taxes and prices have to be before GDP starts to fall. You might also be surprised at the composition of taxes that yields a positive or negative crossover. This all depends on how many resources (facilities) you have to work with. The determinant number for production costs would be wherever your costs are near parity with the WM or any other market numbers you can see - if necessary, shut down production and raise markups until you have reduced demand. If population emigrates, ignore it - they were just free loaders. You may need to build more or shut down some. Once you can achieve a steady green dar and a steady or falling GDP, tweaking the taxes and production quotas controls the GDP, DAR and inflation numbers (in this technique, increasing services won't help much as taxes are very high - too high for welfare to stimulate immigration). Then, set immigration fees to zero and see how you are doing on immigrants. These will also ease inflation - but beware - cultural impacts do have a small but real effect here (dar may fall when being flooded with immigrants). Also, notice how the income tax brackets operate with respect to DAR and immigration. It is entirely possible to have the same effective tax rate across wildy differing tax structures - with very signficant effects on DAR and immigration rates. This is probably the thing that makes balancing your economy the most difficult. Once you get the tax structure balanced, then, as your revenues increase, either divert the cash into services or lower taxes. You may need to maintain the high taxes for a long time to soak off inflation - longer perahps than you'd like. So use the excess cash to build a research center, or send the duchess on a world tour or something.

One other small point - in a stagnating economy - which you will obtain after the knd of balancing just described, tweaking production down (sometimes as far as 90%) will have dramatic effects on the rate at which you are deflating or inflating - and you may still be accumulating a surplus. Sometimes just one alt-click down is enough to halt an inflation spiral, or accelerate a deflation. Look at the production/demand/actual use numbers - not just the production quota.
Colorless green ideas sleep furiously [but otherwise, they do not worry and are happy].

moondrift
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#13 Post by moondrift » Sep 23 2006

well I guess that gives me a lot more options than my heavy handed taxation policy :D But it will take a lot of getting used to before i can get the hang of that. Not really been much of an economics student, more a military guy. But have found that this game is very involved for economics.. The ministers control isn't so bad anymore I find that they do tend to do a lot of what you are suggesting on a limited scale. I recently had my minister control inflation and he put taxes to 68% and reduced production on some goods by about 60% but he let inflation go down and down into negative figures. Mind you I think that depends on the prorities you give them and I might well have had conflicting ones :lol:

Il Duce
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#14 Post by Il Duce » Sep 23 2006

Metrics vary by region and scenario...

Getting the right balance of gdp growth and immigant flow is the tough part. It is tough to identify the OPTIMAL mix for sustained growth. If you are fighting your econ, you probably had the wrong plan. stop and rethink.
Colorless green ideas sleep furiously [but otherwise, they do not worry and are happy].

jjbond007
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#15 Post by jjbond007 » Jul 05 2008

IMO, inflation increases your production costs, and maybe other costs. To reduce inflation you need to increase domestic prices (max them if you can handle it), set production to demand only, raise taxes to 100%, reduce building, reduce social costs. If you are self-sufficient, it is a meaningless number. Inflation simply raises all the prices. So while it is raising your production prices, you can also raise your domestic prices to your consumers. If you want to fight it, simply raise domestic prices, and drop production to demand instead of capacity.
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”-- Ronald Reagan
http://www.viritix.com <===click and track inflation

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