ABSTRACT
The inflationary concern with price liberalization is that the ‘rush to buy’ evidenced in the fixed price regime would suddenly get converted into a massive open inflation, with seemingly no limit on the upward path of prices. Many prices were liberalized, and a galloping inflation ensued. But this appearance is somewhat deceiving. The inflation that Russia experienced after price decontrol is not a direct result of liberalization. A common suggestion is that price liberalization in a reforming socialist economy consists of a one-time adjustment in the price level. Price liberalization, i.e., freeing state sector prices, converts repressed inflation into open inflation. Still, price liberalization hurts some people. The perception that higher prices are simply a result of bad government policy poses a problem for price liberalization as well, since the first obvious effect of price liberalization is a large increase in most state-sector nominal prices.
