Understanding the types of inflation will give you an unfair advantage. Inflation is the general increase in the price level of goods and services. As a result, it decreases the purchasing power of money.
Inflation plays an essential role in our life. It relates to our money and living-style. Therefore, you have to learn about it.
In this lesson, we are going to learn the types of inflation based on speed.
Types of Inflation
Let’s discuss the types of inflation.
Creep means to move slowly. Economic activities are slow in creeping inflation. If the Inflation rate is anywhere between 2-3%, then it is called ‘Creeping Inflation.’ It is a mild rate of inflation. A mild Inflation rate is reasonable.
As the name suggests walking inflation denotes a higher pace than creeping inflation. Some people also call it ‘Trotting Inflation.’ If the Inflation rate rises between 3-10% annually, then it is called walking inflation. And unchecked walking inflation is dangerous to the economic health of a nation as a whole.
As the name suggests, running inflation denotes a higher pace than walking inflation. If the rate of inflation ranges between 10-20% annually, we call it running inflation. Middle-class and poor people suffer a lot at this stage of inflation. The government must take measures to control the rate of inflation unless it becomes galloping inflation.
Gallop means proceed at high speed. Unchecked running inflation results in Galloping Inflation. When the rate of inflation rises more than 20% annually, we call it galloping inflation. Consequently, the prices of goods and services become out of reach for a common man. In an underdeveloped or developing economy, most of the people suffer. The currency of the country loses its value.
It is the worst kind of inflation for an economy. Once the government fails to control the galloping inflation, hyperinflation occurs. When the rate of inflation is out of control, we call it hyperinflation. It is a difficult situation. It can collapse an economy. The purchasing power of money goes down drastically—the prices of goods and services skyrocket.
The best examples of hyperinflation are – Venezuela, Zimbabwe, South Sudan, Argentina, and Iran. The Inflation rate in these countries is more than 50% as of 31st March 2019.
As you can observe, stagflation is a combination of two words; stagnation and inflation. During the stagflation, the rate of inflation is high. Economic growth becomes slow. The unemployment rate becomes higher. All these three things happen simultaneously and remain unchecked for a long time. It is an economic recession.
As the name suggests, it is just the opposite of inflation. It is a reduction in the general level of prices of goods and services in an economy. Thus, the purchasing power of money rises. The causes of deflation are the reduction of money supply and credit availability.
You know that a little bit of inflation is necessary for the growth of an economy. Thus, deflation is not suitable for the health of an economy. Japan experienced the stagnation and deflation for a period of 10 years from 1991 to 2001. It is known as ‘Japan’s lost decade.’
Types of Inflation – notes
- An inflation rate between 2-3% is called creeping inflation
- In walking inflation, the rate of inflation is between 3-10%
- In running inflation, the rate of inflation is between 10-20%
- When the rate of inflation is more than 20%, we call it galloping inflation
- When the rate of inflation is out of control, we call it hyperinflation
- Stagflation happens when the growth is slow
- Deflation is the opposite of inflation
- A moderate rate of inflation is suitable for an economy
Types of Inflation – summing up.
Inflation is just like a two-sided sword. Neither a high rate of inflation nor deflation is suitable for an economy. A higher rate of inflation reduces purchasing power. At the same time, deflation is unwanted. Thus, it generates a lot of pressure for policymakers.
In India, the rate of inflation is around 7.7% for the last four decades on average. To our surprise, the rate of inflation touched an all-time high of 34.7% in October 1974. However, it reached (-11.3%) in May 1976, just over two years.
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