What is Inflation?

Simply put, inflation refers to the rise in the prices of most goods and services of daily or common use- such as food, clothing, transport, housing etc. From an economic perspective, inflation refers to the long-term uptick in the prices of goods and services, and thus in turn leads to the devaluation of currency and decrease in the purchasing power of an economy’s currency.

What Are the Types/ Causes Of Inflation?

Ideally, inflation is broadly classified into three types- demand-pull inflation, cost-push inflation, and built-in inflation. It is widely acknowledged belief that the nature of inflation is not uniform in an economy all the time.

Deficit-induced inflation- the government may ask the central bank to print additional money as the budget of the government reflects a deficit when expenditure exceeds revenue. Pumping of additional money may meet the budget deficit, though price rise is also likely.

Creeping/ Mild Inflation- This occurs when the rise in price is very slow. Such an increase in prices is regarded as safe and essential for economic growth.

• Walking Inflation- Walking inflation occurs when prices rise moderately, and the annual inflation rate is a single digit. It is a warning signal for the government to tame it before it turns into running inflation.

• Running Inflation- Price rise is rapid and has tremendous adverse effects on the poor and middle class. Its control requires strong monetary and fiscal measures.

• Hyperinflation- This occurs when prices rise very fast at double- or triple-digit rates. It could lead to a situation where the inflation rate can no longer be measurable and becomes uncontrollable.

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