Inflation Types

Inflation is generally classified on the basis of its rate and causes, while rate-based classification of inflation refers to the severity of inflation or how high or low is the rate of inflation, cause-based classification of inflation refers to the factors that cause inflation. In this section, we discuss the types of inflation classified on the basis of its rate. On rate basis inflation is classified as:

(i) Moderate inflation: - when the general level of price rises at a moderate rate over a long period of time, it is called moderate inflation or creeping inflation.

(ii) Galloping inflation: - the economists have different views on galloping inflation. For example, according to baumol and blinder, galloping inflation refers to an inflation that proceeds at an exceptionally high rate. They do not specify what rate of inflation is exceptionally high Samuelsson and nordhaus define galloping inflation more precisely. According to them inflation in the double-or triple-digit range of 20,100 or 200 percent a year is labeled galloping inflation. 

(iii) Hyper inflation:- in general, a price rise at more than three-digit rate per annum is called hyper inflation, according to some economists, however, hyperinflation is often defined as inflation that exceeds 50 percent per month…..an inflation rate of 50 percent per month implies a more than 100-fold increase in the price level over a year. The following anecdotes about German hyper inflation would reveal what happens during the period of hyper inflation. 

It was cheaper to burn currency notes to make tea rather than buying it in the tea-shop.

Price fo a house in pre-inflation period was just sufficient to pay a day’s rent in post-inflation period.

At the time of entering the café, the price of a cup of coffee was 4,000 makes, which rose to 8000 marks before one could finish his coffee. 

(iv) Open an suppressed inflation: - in the contemporary writings on the subject, one often comes across the terms open inflation and suppressed inflation. When there is no control on the rising prices and prices are free to fang their own level, the inflation under his condition is called open inflation. 

In spite of these control measures, prices do rise and inflation does take place but at a rate lower than the potential rate in the open system. This kind of inflation is called suppressed inflation.