General Awareness: Inflation and Classification of Inflation for Civils, UPSC, SSC Exams

Inflation and Classification of Inflation

It is defined as a continuous increase in the general level of prices for goods and services. It is measured as an yearly percentage increase. Inflation is the percentage change in the value of the Wholesale Price Index (WPI) on a year basis.

Classification of Inflation:

Inflation is classified on the basis of increase in price. In some countries, inflation occurs even in the state of peace while in some countries, inflation occur during the time of war.


i ) Creeping Inflation:

This inflation is a slow inflation. In this type of inflation, price increases about at the rate of 2% per year, so, slow increase in price is not taken as bad.


ii ) Moderate Inflation:

This can be differently defined around the world, given the different inflation histories. As an indication only, one could consider an inflation as moderate when it rages from 5% to 25 or 30%. For some countries, the higher part of this range is also called as a  "High Inflation".

iii ) Demand Pull Inflation:

It is asserted to arise when accumulated demand in an economy outpaces cumulative supply. It involves inflation rising as real gross domestic product rises and unemployment also falls.

Main causes of demand pull inflation are:

• Quick increase in consumption and investment.
• Sudden increase in exports.
• A lot of government spending.
• Excessive monetary growth.

iv ) Galloping Inflation:

When inflation rise to 10% or more, it wreaks absolute havoc on the economy. Money  value loses very  fast that business and employee income does not  keep up with costs and prices. Foreign investors also avoid the country. The economy becomes unstable and government will lose credibility.Galloping inflation must be prevented.

v )Suppressed Inflation:

Existing inflation by government price controls or other interferences in the economy such as subsidies. Such suppression, can only be temporary because no government  measure can completely contain accelerating inflation in the long-run. Also called repressed inflation.

vi ) Hyper Inflation:

Hyper inflation is when the prices skyrocket more than 50% a month. It is fortunately very rare. In fact, most examples of hyper inflation have occurred when the government printed money recklessly to pay for war.