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Types of Inflation




1. Creeping Inflation:

When the prices of products or services increase at a very low rate i.e., 3% or less per annum, then such type of price increase is categorized as Creeping Inflation. Creeping inflation is also known as Mild Inflation. we can consider it is a beneficial type of Inflation as most developed countries and their desired rate of inflation between 2-3% And developing countries like India can have a Target Inflation Rate little higher than this.
This type of inflation does not raise the price by a large amount and helps to keep the unemployment rate under control also. Creeping Inflation is good for economic growth and that's why countries like USA and UK keep it as target IR.

2. Walking Inflation:

Walking Inflation Ranges from 3-10% per year whether it is good or bad for the economic health of a country? Well, this depends on the country and the situation of economics. If you are aware of the effects of inflation on economic growth, unemployment, etc, that it would be a lot easier to understand this.
As we discussed, the target Inflation rate of countries like USA lies in the range of Creeping Inflation, but for some countries take it a little higher like 5-6%. This has its own reason like inverse relation between Inflation and Unemployment or some other positive aspects of inflation. But obviously, they cannot let the prices increase too high and inflation rate to like of 8%, 10% cannot be called and desirable.
This is bad for the economic health as the prices up, people start buying more to avoid buying higher prices after some time. In such case, demand increases at a level which supplies are not able to match, and thus, wages can also not increase much.

3. Galloping Inflation:

As its name suggests, it is a very high rate of inflammation with double or triple-digit rate of prices increase each year. This is a really bad condition when the price keeps increasing but the product and income of people fail to keep up with it. Galloping Inflation is strictly needed to control otherwise it may also lead to Hyperinflation which is even worse. Foreign investment also curtails such conditions due to a lack of confindence in the economy and the government running the country. For a more detailed understanding of Galloping Inflation, you may visit the link provided below.

4. Hyperinflation:

Hyperinflation is inflation rising at a very high pace, typically exceeds 50% each month with no upper limit. We have seen cases in history where rate of inflation was in millions and billions of percent per year. In such condition’s prices increase every day and hour.
You may have brought a loaf of the brand for Rs. x in the morning but in the evening, its price would have increased to (x+y) Rs. Hyperinflation in Germany during the 1920s is a very famous example to discuss. Due to the effect of World War 1, used Dept and to pay the striking workers, the government printed the money extravagantly.
Production and economic growth could not keep up with this huge money supply which resulted in Hyperinflation. The condition was so bad that a single bread would cost in millions of German marks and we will have to hold such a large amount of cash, etc. Hyperinflation can really make the life of people miserable.
Hyperinflation can lead a country to replace its currency with some foreign currency. this happened in Yugoslavia on January 24, 1994. In its desperate attempt to stop this Inflammationaly Hellhound, a super dinar was introduced by the National Bank of Yugoslavia which pegged equal to the Deutsch mark.
By now, you must be knowing that inflation is a rise in the prices of products and services over time. If you want to learn it in Hindi as well, you can visit inflation meaning in Hindi.
Talking about the types of Inflation, there are four types: Creeping Inflation, Galloping Inflation, Walking Inflation, Hyperinflation, which are categorized on the basis of the rate of the price increase.
Experts also consider Demand-Pull inflation and Cost-Push inflation as other types of inflation on the basis of the reason of prices increase. but they are not types, weather cause of inflation. Therefore, we will not include these two in this article and if you want to learn them, you can follow the links below.
The types of inflation having the names based on their cause or special purpose of four which they are calculated. This category of inflation is just random and new terms and can be coined anytime. These terms are used very often to convey an idea of what we are talking about. For eg: if someone says wages inflation, people will understand that increase in prices that, we are talking about have some relation between the income of people.

Other Specific types of Inflation

1. Wage Inflation:

Wage inflation is caused by when wages of employees and workers increase more rapidly than the Aggregate Demand and purchasing power of Consumers. So, how can an increase in wages lead to inflation? This can happen in more than one way. First, if companies increase the wages of their workers and employees, the cost of production and running the Business will increase. As the company’s expenses increase, it increases the prices of their products/services that it provides. Second, if wages increase on a very large scale i.e., wages increase for a very large number of workers due to any reason (like nationwide workers strike), it may increase the Aggregate demand in-country. This is because of the increase in wages, the purchasing power has increased.

2. Core Inflation:

Core inflation is something that is calculated to determine the underlying long-term inflation. It is calculated by measuring the price changes of products and commodities. But some sectors that have very high volatility of prices, like food and energy, are not included in this calculation. we calculate Core inflation to study and understand the relationship between prices of product basket and the level of consumers income and demand. We cannot include food and energy because their demand will not decline or increase much even if their prices increase as they are necessary and stable commodities. Therefore, even if the prices increase and the income of people do not, they will buy food and energy. Moreover, their prices can change wildly and make the inflation curve less stable to study. So, food and energy are exempted from this calculation due to high fluctuation in their prices.

1. Deflation:

Deflation is inflation with a negative rate of changes in prices. In simple terms, if prices are decreasing instead of increasing, it is known as Deflation. To someone, who does not know the positive effects of inflation on the economy, deflation might seem to be an ideal condition where the prices are decreasing and making the life of people easier. But unfortunately, this does not work like that. Instead of having positive consequences, we would say that the effect of deflation on the economy is on rather bad terms. Pointing clearly, deflation brings unemployment, a fall in economic growth, and decreasing the money supply. This is also not true that deflation always brings bad times. The late 19th century was a time when America was experiencing deflation and yet the economy was on the boom. Rapidly growing technology and industries at that time are considered to be the reason behind this. This period of unfortunate deflation was termed as Great Deflation.

2. Disinflation:

People generally confuse disinflation with deflation, but they are definitely two different terms. Disinflation is a decrease in the rate of inflation while deflation is a decrease in prices (or negative effect of inflation). Taking an example, if in the present financial year, the inflation rate is 10% but next year, it drops to 8%, then this is the condition of disinflation. You need to understand that, hear the rate of inflation has decreased, it means the prices will continue to increase, but it at a slower rate than earlier. But in the case of deflation, it is the prices, that are falling. Now the question arises, is disinflation good or bad? It depends. It depends on the economic situation of the country. If present inflation is 10% and the country is targeting bring it down as 6%, 7%, 8% in all these cases, it will be a good scenario. Similarly, if a country (like India) 4% of inflation it reduces to 2%, then it is not preferable.

3. Stagflation


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