12 types of inflation.
Inflation means the condition of a substantial and rapid increase in the
general price level which causes a decline in the purchasing power of
Features of Inflation:
Inflation is always accompanied by a rise in the price level.
Inflation is a monetary phenomenon and it is generally caused by excessive money supply.
Inflation is a dynamic process as observed over the long period.
A cyclical movement of prices is not inflation.
Pure inflation starts after full employment.
Inflation may be demand pull or cost push.
Excess demand in relation to the supply of everything is the essence of inflation.
KINDS OF INFLATION
1) According to Rate of Rise in Price:
i) Creeping inflation: When the rise in prices is very slow like that of a snail or creeper, it
called creeping inflation. In terms of speed, a sustained rise in prices of annual increase
of less than 3 percent per annum is characterized as creeping inflation. Such an increase
in prices is regarded safe and essential for economic growth.
ii) Walking inflation : When the rise in prices becomes more pronounced as compared to a
creeping inflation, there exists walking inflation in the economy. Roughly, when prices
rise by more than ten percent and within a range of 30 percent to 40 percent over a
decade, or 3 to 4 percent a year, walking inflation is the outcome. Walking inflation
presents a warning signal for the occurrence of running and galloping inflation.
iii) Running inflation: When the movement of price accelerates rapidly, running inflation
emerges. Running inflation may record more than 100 percent rise in prices over a
decade. Thus, when prices rise by more than 10 percent a year, running inflation occurs.
iv) Galloping inflation: In the case of hyperinflation, prices rise every moment, and there is
no limit to the height to which prices might rise; therefore, it is difficult to measure its
magnitude, as prices rise by fits and starts. If, within a year, the prices rise by 100
percent, it is a case of hyperinflation or galloping inflation.
2. According to the factors influences money supply and demand for goods and services.
Excessive money supply inflation: This is classical types of
inflation , where there is an excess of money supply in relation to the availability of real
goods and service/ This type of inflation is usually conceived with reference to the
cyclical fluctuations in the economy, and measures of monetary control to check
inflationary of deflationary trends.
Cost inflation: When inflation emerges on account of a rise in factor cost, it
is called cost inflation. It occurs when money incomes (wage rate, particularly) expand
more than real productivity. Cost inflation has its course through the level of money
costs of the factors of production and in particular through the level of wage rates. Due
to a rising cost of living index, workers demand higher wages, and higher wages in their
turn increase the cost of production, which a producer generally meets by raising prices.
Deficit inflation: When the government budgets contain heavy deficit
financing, through creating new money, the purchasing power in the community
increases and prices rise. This may be referred to as deficit-induced inflation.
War-time inflation: It is the outcome of certain exigencies of war, on
account of increased government expenditure, which is of an unproductive nature. By
such public expenditure, the government apportions a substantial production of goods
and services out of total availability for war which causes a downward shift in the supply;
as a result, an inflationary gap may develop.
Post-war inflation : It is a legacy of war. In the immediate post-war period
it is usually experienced. This may happen when the disposable income of the
community increases when war-time taxation is withdrawn or public debt is repaid in the
Peace time inflation : By this is meant the rise in prices during the normal
period of peace. Peace-time inflation is often a result of increased government outlays
on capital projects having a long gestation period; so a gap between money income and
real wage develops.
According to Coverage or scope point of view
Comprehensive inflation : When prices of every commodity throughout
the economy rise, it is called economy-wide or comprehensive inflation. It is a normal
inflationary phenomenon and refers to the rising prices of the general price level.
Open and Repressed inflation: Inflation is open or repressed
according to government
reaction to the prevalence of inflationary forces in the economy.
Profit inflation: The concept of profit inflation was originated by Keynes in his
Treatise on Money. According to Keynes the price level of consumption goods is a
function of the investment exceeding savings. The considered the investment boom as a
reflection of profit boom. Inflation is unjust in its distribution effect. It redistributes
income in favorour of profiteers and against the wagering class.
Pull inflation : In a market there is inter-action between the flow of money
and flow of goods and services. When more money chases relatively less quantity of
goods and services the excess of demand relative to supply pushes up the prices of
goods and service. Such inflation, as a result of increased money expenditure; is called
Cost-Push Inflation : Often the demand-pull inflation precedes the cost
push inflation. When the former sets in there in an increasing demand for factors of
production, the prices of these also rise, leading to raise in general prices. It is called
cost-push inflation which, however, may also be due to rise in the price of imported
material or even be profit inflation when entrepreneurs exploit the scarcity conditions to
secure higher monopolistic gains by raising price.
Stagflation: The combined phenomenon of demand-pull and cost push inflation
is found in many countries, both the developed and the developing. One of these
situations is in the form of stagflation under which economic stagnation, in the form of a
low rate of growth , combines with the rise in general price level. There are many factors
contributing to this situation. The advanced countries may show slow growth on account
of the maturing of the economy. But the labor unions are powerful and are successful in
bargaining for higher wages which are not in keeping with productivity leading to a
situation of stagflation.
In the developing countries, this happens when aggregate demand increased at a fast
rate due to high public expenditure and expansion of credit money which is more
justified by the increase in real resources. Organized labor exerts its influence in raising
up wages thus combining cost-push effect with the demand – pull- inflation.
Semi-inflation: According to Keynes, so long as there are unemployed
resources, the general price level will not rise as output increased. But a large increase
in aggregate expenditure will face shortages of supplies of some factors which may not
be substitutable. This may lead to increase in costs, and prices start rising. This is known
as semi-inflation or bottleneck inflation because of the bottlenecks in supplies of some
True inflation : According to Keynes, when the economy reaches the level of
full employment, any increase in aggregate expenditure will raise the price level in the
same proportion. This is because it is not possible to increase the supply of factors of
production and hence of output after the level of full employment. This is called true
Mark-up-inflation: The concept of mark-up inflation is closely related to
the price-push problem. Modern labororganization possess substantial monopoly power.
They , therefore, set prices and wages on the basis of mark-up over costs and relative
incomes. Firms possessing monopoly power have control over the prices charged by
them. So they have administered prices which increase their profit margin. This sets off
an inflationary rise in prices. Similarly, when strong trade unions are successful in raising
the wages of workers, this contributes to inflation.