Types of inflation, DEFINITION OF INFLATION AND TYPES OF INFLATION, Inflation may be defined as a persistent rise in the general price level of goods and services.
DEFINITION OF INFLATION
Inflation occurs when the volume of purchases is permanently running ahead of production, with too much money in circulation chasing too few goods.
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TYPES OF INFLATION
There are four main types of inflation. These are: Demand-pull inflation: Demand-pull inflation occurs when consumers have high purchasing power, leading to increases in aggregate demand without a corresponding increase in supply. In other words, this types of inflation occurs when the demand for goods and services is greater than their supply. The factors responsible for this type of inflation may be due to population increase; increase in workers’ salaries and wages.
- Cost-push inflation: Cost-push inflation occurs when increases in cost of production are passed on to consumer in the form of high prices of goods and services are pushed up by rising costs.
Hyper-inflation: Hyper-inflation, also known as galloping or run-away inflation, occurs when a persistent inflation becomes uncontrollable and the value of money keeps declining rapidly. Prices of goods and services rise at a fast rate, leading to money loosing its value or its ability to buy goods. War, budget deficits, etc are the major cases of hyper-inflation.
Persistent or creeping types of inflation: Persistent or creeping inflation, also known as chronic inflation, occurs when there is a slow but steady rise in the volume of purchasing power and fall in supply of goods and services. In other words, when inflation involves a slow but steady rise in the general prices of goods and services, it is known as creeping inflation.
