In the last chapter, we have seen what is meant by inflation. In this following section, we will discuss the types of inflation and its effects. Before moving to this chapter, please be sure about inflation. If not please refer the previous section and come here again.
Inflation types broadly classified into two categories.
1. Based on the rate of change in price
2. Based on causes
The rate of change in price is nothing but the “how frequently the prices changes”.
Based on rate of change in price
In this inflation, the price rise will be in prolonged (Very Slow)phase. So that it also called as the snail or creeper inflation. The rate of change of price would be around 3%. This will be considered as healthier inflation so, nothing to worry about this inflation.
Walking or trotting Inflation
This inflation is the warning for the big disaster. The government should take serious plans to control this inflation at this level. If we miss controlling in the root level, then it would be a headache for both the people and government. The rate of change of price level would be around 3 to 10%.
The rate of change of price will be moving very rapidly (in more speed). It will affect the economy very adversely. Economist refers the pace with the running horse. The price level percentage would be around 10-20%.
Hyper Inflation (or) Galloping inflation (or) Runaway inflation
You can find a monetary collapse and difficult situation among the country. This will be the worst economic condition for any country. The Price rate will be rapidly moving from two digits to three digits like 10% to 20% to 110%. You can’t even buy 1kg of rice or even ½ liter of Milk. Everything will be more costly than before.
In short people, purchasing power will be reduced.
Based on Causes:
Inflation can also occur due to the following causes.
In the more straightforward term “Demand-pull inflation occurs whenever there is a higher demand for a particular product or Service”. For an Example if all of them trying to buy a particular smartphone, then the demand for that smartphone will go higher, then the manufacturer will increase the price.
Demand-pull inflation will occur if the money circulation is more. Its means, If the money in the hands of people increases then they ultimately buy something, then this inflation comes into the picture.
Think about all of them in our country have money to buy an iPhone what would happen? Apple can’t afford to serve all of them, or they even don’t have time to manufacture some lakh units of iPhone. So instantly they will hike the price of their phones.
Cost-push inflation will be immensely easier to understand. Whenever the manufacturing cost goes higher, the final product price will also go higher. Keep a simple example: If milk, sugar, tea powder price increases, then naturally a single cup of tea will increase.