Inflation On Basis causes

 

Types of inflation on the basis of different causes:-

 

Deficit Inflation

Deficit inflation takes place due to deficit financing.

 

Credit Inflation

Credit inflation takes place due to excessive bank credit or money supply in the economy.

 

Scarcity Inflation

Scarcity inflation occurs due to hoarding. Hoarding is an excess accumulation of basic commodities by unscrupulous traders and black marketers. It is practised to create an artificial shortage of essential goods like food grains, kerosene, etc. with an intension to sell them only at higher prices to make huge profits during scarcity inflation. Though hoarding is an unfair trade practice and a punishable criminal offence still some crooked merchants often get themselves engaged in it.

 

Profit Inflation

When entrepreneurs are interested in boosting their profit margins, prices rise.

 

Pricing Power Inflation

It is often referred as Administered Price inflation. It occurs when industries and business houses increase the price of their goods and services with an objective to boost their profit margins. It does not occur during a financial crisis and economic depression, and is not seen when there is a downturn in the economy. As Oligopolies have the ability to set prices of their goods and services it is also called as Oligopolistic Inflation.

 

Tax Inflation

Due to rise in indirect taxes, sellers charge high price to the consumers.

 

Wage Inflation

If the rise in wages in not accompanied by a rise in output, prices rise.

 

Build-In Inflation

Vicious cycle of Build-in inflation is induced by adaptive expectations of workers or employees who try to keep their wages or salaries high in anticipation of inflation. Employers and Organisations raise the prices of their respective goods and services in anticipation of the workers or employees’ demands. This overall builds a vicious cycle of rising wages followed by an increase in general prices of commodities. This cycle, if continues, keeps on accumulating inflation at each round turn and thereby results into what is called as Build-in inflation.

 

Development Inflation

During the process of development of economy, incomes increases, causing an increase in demand and rise in prices.

 

Fiscal Inflation

It occurs due to excess government expenditure or spending when there is a budget deficit.

 

Population Inflation

Prices rise due to a rapid increase in population.

 

Foreign Trade Induced Inflation

It is divided into two categories, viz., (a) Export-Boom Inflation, and (b) Import Price-Hike Inflation.

 

Export-Boom Inflation

Considerable increase in exports may cause a shortage at home (within exporting country) and results in price rise (within exporting country). This is known as Export-Boom Inflation.

 

Import Price-Hike Inflation

If a country imports goods from a foreign country, and the prices of imported goods increases due to inflation abroad, then the prices of domestic products using imported goods also rises. This is known as Import Price-Hike Inflation. For e.g. India imports oil from Iran at $100 per barrel. Oil prices in the international market suddenly increases to $150 per barrel. Now India to continue its oil imports from Iran has to pay $50 more per barrel to get the same amount of crude oil. When the imported expensive oil reaches India, the indian consumers also have to pay more and bear the economic burden. Manufacturing and transportation costs also increase due to hike in oil prices. This, consequently, results in a rise in the prices of domestic goods being manufactured and transported. It is the end-consumer in India, who finally pays and experiences the ultimate pinch of Import Price-Hike Inflation. If the oil prices in the international market fall down then the import price-hike inflation also slows down, and vice-versa.

 

Sectoral Inflation

It occurs when there is a rise in the prices of goods and services produced by certain sector of the industries. For instance, if prices of crude oil increases then it will also affect all other sectors (like aviation, road transportation, etc.) which are directly related to the oil industry. For e.g. If oil prices are hiked, air ticket fares and road transportation cost will increase.

 

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