Types of Inflation

Inflation in all countries are not the same types. In some countries, prices increases very slowly while in some countries price increases very rapidly. Therefore, experience tells us that there are many types of inflation. We explain below the various ways in which these types of inflation can be classified. This classification is based on different considerations.

(1)        On the basis of rapidity with which prices rise, inflation may be classified into four types:

(a)  Creeping Inflation: It is the mildest form of inflation and is not considered to have any dangerous effects on the economy. Slow Price increased is called creeping inflation in which prices rise by not more than 3% Per annum.

(b) Walking Inflation:     The next stage, from the point of view of rapidity of inflation, is walking inflation. When creeping inflation continues over a decade and prices rise from 30% to 40%, this may be described as walking inflation.

(c) Running Inflation: When the speed price-rise increases, walking inflation gets converted into running inflation. Running inflation would record a 100% increase in price over a period of ten years.

(e) Galloping or Hyper Inflation: In galloping inflation, prices rise every moment. The prices may rise by 100% within a year. Hyper inflation is an indication of serious disequilibrium in the economic system.

Above given four stages of inflation can be illustrated graphically as follows:

In above given figure, time period is measured along on X-axis and inflation rate on Y-axis. ‘C’ represents creeping inflation. In this situation, it takes around 10 years for the increase in price by 10% ‘W’ represents the walking inflation. In this type of inflation, price increases by 30% to 40% in the period of 10 years. ‘R’ represents the running inflation. In such a situation, price increases by 100% in 10 years. ‘H’ represents the hyper inflation or galloping inflation. In this type of inflation, price increases by 100% in a one year of time period.

(2)        On the basis of the processes through which it is induced, inflation may be classified into three types;

(a) Deficit-induced inflation: Deficit-induced inflation is that which is the result of continuous deficit financing by the government.

(b) Wage-induced inflation: Wage-induced inflation is that which is caused by a faster increase in money wages than the productivity increases allow.

(c) Profit-induced inflation: profit-induced inflation is that which is due to a sustained increase in the profits of the manufacturers due to monopoly influences.

(3)        On the Basis of Time, inflation may also be classified into three types;

(a)  War-time inflation: War-time inflation emerges when the government spends more than its revenue. The government uses a considerable portion of available output. Hence, there is a downward shift of supply to the civilian population thereby giving rise to an inflationary gap.

(b) Post-war inflation: Post-war inflation occurs because the government may withdraw war-time taxes. This would add to the disposable income of the community. Besides this, the excess liquidity accumulated during war-time might manifest itself into excessive demand and therefore, lead to inflation.

(c) Peace-time Inflation: Inflation in normal times is called peace-time inflation. For example, the inflation experienced in under-developed countries due to excessive aggregate expenditures is peace-time inflation.

(4)     On the basis of scope, inflation is considered to be of two types: Comprehensive inflation and sporadic inflation. When there is a general rise in prices and the prices of all the commodities increases, this is comprehensive inflation. Whereas comprehensive inflation is economy-wide, sporadic inflation is of sectoral nature. Sporadic inflation results when aggregate supply is limited by physical conditions and can not be expanded quickly.

(5)        Inflation may also be classified into ‘Open’ inflation and ‘suppressed’ inflation. In open inflation, prices rise freely without any government intervention. A suppressed inflation is one in which government attempts to suppress the manifestation of inflationary pressures by controlling prices, exchange rates and credit creation by bank. The Hyper inflation in 1920’s in Germany, Hungary, Russia were examples of open inflation. Inflation in Germany after the Second World-War was an example of suppressed inflation.

 

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