Inflation On basis of Rates

On different grounds, economists have classified inflation into various types. According to the rate inflation there are four types of inflation

  1. Moderate Inflation
  2. Running Inflation
  3. Galloping Inflation
  4. Hyper Inflation

Moderate/Mild/Creeping Inflation

Moderate inflation is a mild and tolerable form of inflation. It occurs when prices are rising slowly. When the rate of inflation is less than 10 per cent annually, or it is a single digit annual inflation rate, it is considered to be moderate inflation in the present day economy. It does not disrupt the economic balance. It is regarded as stable inflation in which the relative prices do not get far out of line.

Professor Samuelson observes that moderate inflation is typical today in most industrialised countries. The following are the major characteristics of moderate inflation:

  1. There is a single digit inflation rate (less than 10 per cent) annually
  2. It does not disrupt the economic balance
  3. It is regarded as stable Inflation in which the relative prices do not get far out of line
  4. People’s expectations remain more or less stable under moderate inflation
  5. Under a low inflation rate, the real interest rate is not too low or negative, so money can serve its role as a store of value without difficulty.
  6. There are modest inefficiencies associated with moderate inflation

Economists have arbitrarily laid down that a 3-4 per cent price rise per annum is a tolerable rate of inflation in modern economies. Incidentally, some economists have described up to 3 per cent annual rate of inflation as ‘creeping inflation’ and if it exceeds 10 per cent, it is called ‘walking inflation.’

Running Inflation

When the movement of price accelerates rapidly, running inflation emerges. Running inflation may record more than 100 per cent rise in prices over a decade. Thus, when prices rise by more than 10 per cent a year, running inflation occurs.

Galloping Inflation

If running and mild inflation is not checked and if it is uncontrollable, it may assume the character of galloping inflation. When prices are rising at double or triple digit rates of 20,100 or 200 per cent a year, the situation may be described as galloping inflation. Galloping inflation is really a serious problem. It causes economic distortions and disturbances. Many Latin American countries such as Argentina, Brazil had inflation rates of 50 to 700 per cent per year in the 1970s and 1980s.

Hyper Inflation

It is a stage of very high rate of inflation. While economies seem to survive under galloping inflation, and deadly strain takes hold when the cancer of hyperinflation strikes. In the case of hyperinflation prices rise is very severe. It is over 1000 per cent per year. There is at least a 50 per cent price rise in a month, so that in a year it rises to about 130 per cent times. Hyperinflation is a monetary disease.

Nothing good can be said about a market economy in which prices are rising a million or even a trillion per cent per year. Hyperinflation occurs when the prices go out of control and the monetary authorities are unable to impose any check on it. Germany had witnessed hyperinflation in 1920’s

The Main Features of Hyperinflation are:

  1. During hyperinflation, the price rise is severe. The price index moves up by leaps and bounds. It is over 1000 per cent per year. There is at least a 50 per cent price rise in a month, so that in a year it rises to about 130 times.
  2. It represents the most pathetic deterioration in people’s purchasing power.
  3. It is apparently generated by a massive fiscal dislocation
  4. It is amplified by wage-price spiral
  5. Hyperinflation is a monetary disease
  6. The velocity of circulation of money increases very fast.
  7. The structure of the relative prices of goods become highly unstable
  8. The real wages tend to decline fast.
  9. Inequalities increase
  10. Overall economic distortions take place

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