Types of Inflation


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

The types of inflation based on the time or period of occurrence:
 
1.     War-Time Inflation: Inflation that takes place during the period of a warlike situation is Wartime Inflation. During war, scant productive resources are all diverted and prioritized to manufacture military goods and equipments. Overall it results in very limited supply and extreme shortage (low availability) of resources (raw materials) to produce essential commodities. Production and supply of needed goods slow down and can no longer meet the soaring demand from people. Consequently, prices of necessary goods keep on rising in the market, resulting in Wartime Inflation.

2.     Post-War Inflation: Inflation that takes place soon after a war is a Post-War Inflation. After the war, government controls are relaxed, resulting in a faster hike in prices than what experienced during the war.

3.     Peace-Time Inflation: When prices rise during the peace period, it is known as Peacetime Inflation. It is due to enormous government expenditure or spending on capital projects of a long gestation (development) time.

The types of inflation based on the government's reaction or its degree of control:
 
1.     Open Inflation: When government does not attempt to restrict inflation, it is known as an Open Inflation. In a free-market economy, where prices are allowed to take its course, Open Inflation occurs.

2.     Suppressed Inflation: When government prevents the price rise through price controls, rationing, etc., it is known as Suppressed Inflation. Repressed Inflation is its another name. However, when government removes its controls, it becomes Open Inflation. It then leads to corruption, black marketing, artificial scarcity, etc.

The types of inflation based on the rising prices:
 
1.     Creeping Inflation: When prices are gently rising, it is referred as Creeping Inflation. It is the mildest form of inflation and also known as a Mild Inflation or Low Inflation. According to R.P. Kent, when prices rise by not more than (i.e. Up to) 3% per annum (year), it is called Creeping Inflation.

2.     Chronic Inflation: If creeping inflation persists (continues to increase) for a longer period, then it is often called as Chronic or Secular Inflation. Chronic-Creeping Inflation can be either Continuous (which remains consistent without any downward movement) or Intermittent (which occurs at regular intervals). It is named chronic because if an inflation rate continues to grow for a longer period without any downturn, then it possibly leads to Hyperinflation.

3.     Walking Inflation: When the rate of rising prices is more than the Creeping Inflation, it is known as Walking Inflation. Trotting Inflation is its another name. When prices rise by more than 3%, but less than 10% per annum (i.e., between 3%, and 10% per annum), it is called as Walking Inflation. According to some economists, we must take Walking Inflation seriously as it gives a cautionary signal for the occurrence of Running inflation. Furthermore, if, not checked in due time, it can eventually result in Galloping Inflation.

4.     Moderate Inflation: Prof. Samuelson clubbed together concept of Creeping and Walking inflation into Moderate Inflation. It happens when prices rise by less than 10% per annum (single digit inflation rate). According to him, it is a stable inflation and not a serious economic problem.

5.     Running Inflation: A rapid acceleration in the rate of rising prices is called Running Inflation. It occurs when prices rise by more than 10% in a year. Though economists have not suggested a fixed range for measuring running inflation, we may consider a price increase between 10% to 20% per annum (double-digit inflation rate) as a Running Inflation.

6.     Galloping Inflation: According to Prof. Samuelson, if prices rise by dual or triple digit inflation rates like 30% or 400% or 999% yearly, then the situation can be termed as Galloping Inflation. When prices rise by more than 20%, but less than 1000% per annum (i.e. Between 20% to 1000% per annum), Galloping Inflation occurs. Jumping Inflation is its another name. India has been witnessing it from second five-year plan period.

7.     Hyperinflation refers to a situation where the prices rise at an alarming high rate. The prices rise so fast that it becomes very difficult to measure its magnitude. However, in quantitative terms, when prices rise above 1000% per annum (quadruple or four-digit inflation rate), it is termed as Hyperinflation. During a worst-case scenario of hyperinflation, the value of the national currency (money) of an affected country reduces almost to zero. Paper money becomes worthless, and people start trading either in gold and silver or sometimes even use the old barter system of commerce. Two worst examples of hyperinflation recorded in the world history are of those experienced by Hungary in the year 1946 and Zimbabwe during 2004-2009 under Robert Mugabe's regime.

The types of inflation based on different or miscellaneous causes:
 
1.     Deficit Inflation takes place due to deficit financing.

2.     Credit Inflation occurs due to excessive bank credit or the money supply in the economy.

3.     Scarcity Inflation occurs due to hoarding. Hoarding is an excess accumulation of necessary commodities by unscrupulous traders and black marketers. It is practiced to create an artificial shortage of essential goods like food grains, kerosene, etc. With an intention to sell them only at higher prices to make huge profits during Scarcity Inflation. Though hoarding is an unfair trade practice and a punishable criminal offense still, some crooked merchants often get themselves engaged in it.

4.     Profit Inflation: When entrepreneurs are interested in boosting their profit margins, prices rise.

5.     Pricing Power Inflation: Usually, it is referred as Administered Price Inflation. It occurs when industries and business houses increase the price of their goods and services with an objective to boost their profit margins. It does not occur during a financial crisis and economic depression, and not seen when there is a downturn in the economy. As Oligopolies have an ability to set prices of their goods and services, it is also called as an Oligopolistic Inflation.

6.     Tax Inflation: Due to the rising indirect taxes, sellers charge high price to the consumers.

7.     Wage Inflation: If the rise in wages in not accompanied by an increase in output, prices rise.

8.     Build-In Inflation: Vicious cycle of Build-In Inflation gets induced by adaptive expectations of workers or employees who try to keep their wages or salaries high in anticipation of inflation. Employers and Organizations raise the prices of their respective goods and services in anticipation of the workers or employees' demands. This overall forms a vicious cycle of rising wages followed by an increase in general prices of commodities. If this cycle continues, then it keeps on accumulating inflation at each round turn and thereby results in a Build-In Inflation.

9.     Development Inflation: During the process of the development of an economy, income increases, causing an increase in demand and rise in prices.

10.   Fiscal Inflation: It occurs due to excess government expenditure or spending when there is budget deficit.

11.   Population Inflation: Prices rise due to a rapid increase in population.

12.   Foreign Trade Induced Inflation: It has two categories, viz.,
a.     Export-Boom Inflation, and
b.     Import Price-Hike Inflation.

13.   Export-Boom Inflation: Considerable increase in exports may cause a shortage at home (within exporting country) and results in price rise (within exporting country).

14.   Import Price-Hike Inflation: If a country imports goods from a foreign country and the prices of these goods increases due to inflation abroad, then the prices of domestic products using imported goods also rise. For example, India imports oil from Iran at $100 per barrel. Oil prices in the international market suddenly increase to $150 per barrel. Now India to continue its oil imports from Iran has to pay $50 more per barrel to get the same amount of crude oil. When the imported expensive oil reaches India, the Indian consumers also have to pay more and bear the economic burden. Manufacturing and transportation costs also increase due to hike in oil prices. It consequently, results in a rise in the prices of domestic goods being manufactured and transported. It is the end-consumer in India, who finally pays and experiences the ultimate pinch of Import Price-Hike Inflation. If the oil prices in the international market fall, then the Import Price-Hike Inflation also slows down, and vice-versa.

15.   Sectoral Inflation: It occurs when there is a rise in the prices of goods and services produced by certain sectors of the industries. For instance, if prices of the crude oil increase, then it will also affect all other sectors or areas (like aviation, road transportation, etc.) which are directly dependent on the oil industry. For example, if oil prices hike, air ticket fares and road transportation cost will increase.

16.   Demand-Pull Inflation: Inflation, which arises due to various factors like rising income, exploding population, etc., leads to aggregate demand and exceeds aggregated supply, and tends to raise prices of goods and services. Excess Demand Inflation is its another name.

17.   Cost-Push Inflation: When prices rise due to the growing cost of production of goods and services, it is known as Cost-Push (Supply-side) Inflation. For example, if the wages of workers get raised, then the unit cost of production also increases. As a result, the prices of end products and services being manufactured and supplied are consequently, hiked.

The types of inflation based on the expectation or predictability:
 
1.     Anticipated Inflation: If the rate of inflation corresponds to what the majority of people are either expecting or predicting, then is called Anticipated Inflation. Expected Inflation is its another name.
2.     Unanticipated Inflation: If the rate of inflation corresponds to what the majority of people are neither anticipating nor predicting, then is called Unanticipated Inflation. Unexpected Inflation is its another name.
 
Also -
Comprehensive Inflation: When the prices of all commodities rise in the entire economy, it is known as Comprehensive Inflation. Economy-Wide Inflation is its another name.

Sporadic Inflation: Time when prices of only a few commodities in some regions (areas) rise, it is called Sporadic Inflation. It is sectional in nature. For example, increase in food prices due to bad monsoon (winds that bring seasonal rains in India).
 



Friday, 15th Apr 2016, 04:19:05 AM

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