Inflation refers to the sustained rise in the general price level of goods and services in an economy over a period of time. Here are the different types of inflation based on various classifications:
1. Based on Speed of Inflation
- Creeping Inflation: A slow and steady increase in prices, typically below 3% annually. It's considered normal and manageable.
- Walking Inflation: A moderate rate of inflation, usually between 3% and 10% per year, which can disrupt economic stability if unchecked.
- Galloping Inflation: A very high rate of inflation, above 10% annually. It can destabilize the economy and lead to a loss of confidence in the currency.
- Hyperinflation: Extremely high and uncontrollable inflation, often exceeding 50% per month. It can lead to the collapse of an economy, as seen in countries like Zimbabwe and Venezuela.
2. Based on Causes
- Demand-Pull Inflation: Occurs when demand for goods and services exceeds supply, leading to price increases. This can result from increased consumer spending, government expenditure, or investment.
- Cost-Push Inflation: Triggered by rising costs of production, such as wages, raw materials, or energy. Producers pass on these costs to consumers in the form of higher prices.
- Built-In Inflation (Wage-Price Spiral): Results from a cycle where higher wages increase production costs, leading to higher prices, which in turn fuel demands for even higher wages.
3. Based on Scope
- Core Inflation: Measures the long-term trend in prices by excluding volatile items like food and energy prices.
- Headline Inflation: Includes all items in the consumer basket, including food and energy, making it more reflective of the actual cost of living.
4. Based on Control
- Controlled Inflation: Inflation that is within the government's target range, managed through monetary and fiscal policies.
- Uncontrolled Inflation: Inflation that is beyond the government's control, often spiraling into galloping or hyperinflation.
5. Based on Visibility
- Open Inflation: Inflation that is apparent and visible, with prices rising clearly in the economy.
- Suppressed Inflation: Hidden inflation caused by government price controls, subsidies, or rationing, which may manifest once controls are removed.
6. Special Types
- Stagflation: A situation where inflation is high, but economic growth is stagnant, and unemployment is high. It's a challenging condition for policymakers.
- Deflationary Inflation: Prices rise in specific sectors while others experience deflation (falling prices).
- Reflation: Moderate inflation implemented deliberately to counter deflation and stimulate growth.
7. Based on Origin
- Imported Inflation: Arises due to an increase in the cost of imported goods and services, often caused by currency depreciation.
- Structural Inflation: Results from structural issues in the economy, such as supply chain inefficiencies or lack of infrastructure.
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