Economics of transition: the inflation multiplier

Examining the most advanced economies in transition we meet a moderate and long lasting inflation. This paper tries to determine one of the important mechanisms of inflation connected with the price setting under those circumstances. As the recorded inflation represents one of the most important parameters of price formation, there is a certain mutual relation between the sectoral price formation and the inflation. If the sectoral price formation is formalized by a linear function, this mutual relation can be expressed as a multiplier. In this article a possibility of sectoral price formation with linear function is presented and the inflation multiplier is derived out of it. In the empirical part the linear sectoral price functions and the inflation multiplier are calculated on the case of Slovenia.