Inflation: Type and stages

 

TYPES OF INFLATION:

Creeping Inflation: 

• When the rise in prices is very slow (less than 3% per annum) like that of a snail or creeper, it is called creeping inflation. 
• Such an increase in prices is regarded safe and essential for economic growth.

Walking or Trotting Inflation: 

• When prices rise moderately and the annual inflation rate is a single digit (3% - 10%), it is called walking or trotting inflation. 
• Inflation at this rate is a warning signal for the government to control it before it turns into running inflation.

Running Inflation: 

• When prices rise rapidly like the running of a horse at a rate of speed of 10% - 20% per annum.
• Its control requires strong monetary and fiscal measures, otherwise it leads to hyperinflation.

Galloping or Hyperinflation: 

• When prices rises between 20% to 100% per annum or even more, it is called galloping or hyperinflation. 
• Such a situation brings a total collapse of the monetary system because of the continuous fall in the purchasing power of money.
• One of the most famous examples of hyperinflation occurred in Germany between January 1922 and November 1923. 
• During that period, the average price level increased by a factor of 20 billion, doubling every 28 hours.

Case of Zimbabwe:

• Hyperinflation issue started in late 1990's. In early 90's, President Mugabe started a series of land reforms in the form of Redistribution of land, taking land from ethnically European farmers and giving it to ethnic Zimbabweans.
• This transfer of land damaged the country's capacity of food production resulting in dropping of supply far below demand and raising prices of the food.
• During the height of inflation from 2008 to 2009, it was difficult to measure Zimbabwe's hyperinflation because the government of Zimbabwe stopped filing official inflation statistics.
• Peak month of inflation was estimated at 79.6 billion percent in mid-November 2008, inflation doubling every 24 hrs.  
• In mid-2015, Zimbabwe adopted Dollarisation of the economy.

SKEWFLATION:

• When Inflation is there in one sector and prices are stable in other sectors.
• Ex. Inflation in Indian scenario many times is skewflation as inflation is centered around food inflation in India .

Transitory inflation: 

• Increase in the inflation rate is a temporary or short-lived phenomenon and the inflation rate are expected to drop back again. 
• The situation can be on account of any economic event like sudden slowdown in the supply or increase in demand of any item in the economy.

STRUCTURAL /BOTTLENECK INFLATION: 

• Inflation is because of structural problems in the economy.
• It is prevalent in most of developing countries.
• It is on account of weak institutions and imperfect working of market like food inflation in India.

Shrinkflation : (SHRINK+INFLATION )

• Practice of reducing product’s size without any change in its sticker price.
• This strategy is  employed by companies, mainly in the food and beverage industries, to  maintain their  profit margins in a clandestine manner. 
• It appears to be hidden inflation. 
• Post Covid, this s the most prevalent phenomenon.
• Ex . The strategy of Parle -G is the best example to understand this phenomenon.

Greedflation:(GREED +INFLATION)

• Corporate greed fuels this type of inflation. 
• Profit-Price spiral drives inflation instead of the traditional wage-price spiral. 
• The companies exploits the situation of increasing inflation faced by the people in the economy.
•  Companies increased their prices even more than their increased input costs. 
• In developed countries like Europe and the US, there is a growing consensus that greedflation is a significant factor contributing to inflation.

STAGFLATION:(STAGNATION +INFLATION)

• The situation is marked by stagnation and inflationary situation.
• Stagnant economy is marked by slow growth in the economy, decline in GDP and high unemployment rates.
• Example :This happened in the United States during the 1970s when world oil prices rose dramatically, increasing the costs of goods and contributing to a increase in unemployment. Europe faces stagflation during 2008 recession. India faces stagflation during 1990’s.

REFLATION:

• It is recovery phase of the economy coming out of recession.
• Inflation starts increasing but still remains in the negative regime. 
• This phase is characterized by stimulating the economy in the form of reducing taxation rates or by giving huge stimulus to the economy.
• This stimulus leads to the economic expansion. 

DISINFLATION: (DIS+INFLATION)

• Disinflation is slowdown in the rate of increase of inflation.
• Inflation is still there but there is slowdown in the rate of change of inflation.
• Ex. If inflationary rate is 5% then,2% will be disinflationary.

DEFLATION: (DE+INFLATION) 

• Deflation is general decline in the prices.
• Inflation is in negative regime.
• Ex. if inflation rate is -2%, then it is deflation. 
• During Great depression, it was double digit deflation.