Why Inflation right now could add fuel to income inequality

As countries across the globe – from China to the US – have been reporting record inflation numbers, it could be having greater consequences than we can think about.

There are four types of inflation that exist: creeping inflation (when prices rise 3% a year or less), walking inflation (when inflation is between 3-10% a year), galloping inflation (when inflation rises to 10% or more) and hyperinflation (when prices skyrocket more than 50% a month).

While creeping inflation is considered beneficial for the economy, walking inflation is considered to be destructive; galloping inflation is the one that wreaks havoc on the economy and hyperinflation is something that spells doom.

With both China and the US reporting over 5% inflation rate, it may be said that both the countries are in a destructive mode as on date. In such times, people start buying more than they need to avoid, anticipating higher prices. This increased buying pushes demand even higher to a level that suppliers cannot keep pace with. More worryingly, neither can wages keep up to it. As a result, goods and services start getting out of the reach for most people.

But this destructive price hike comes at a time when the world is just coming out of the pandemic. To put it simply, either the wages of the people are still truncated, or they have just been restored. And there is an endless shopping spree that people have embarked upon. In other words, with lesser money available, people are spending way too more than needed. This will definitely hit the households’ savings, and their response to the contingencies. Once that happens, the role of state increases manifold in social security and governments across the globe have to rework on their budgets.