What Are the Different Types of Inflation?

1. Types of Inflation According to Pace

Here is a pace-wise categorisation of inflation:

• Creeping Inflation: As the name suggests, the pace of this creeping inflation is slow. Prices of commodities and services grow at a constant rate of around 2% or less. This rate of price-hike benefits consumers and the overall economy. People expect that prices and demands will keep on increasing. This inflation in the economy drives business owners to boost their commercial expansion.
• Walking Inflation: In this inflation, the rate of price-hike of goods and services stays between 2% to 10%. Such a rate starts hitting the market negatively as it grows very abruptly. People assume that the prices of items will increase rapidly, and due to this anticipation, they buy more than necessary. When such quick purchases lead to a shortage of things, suppliers increase their product prices to balance with demand. As a result, you can see more hikes in the prices of goods and services.
• Galloping Inflation: Galloping inflation causes price-hike at over 10%. It leads to an adverse impact on the economic stability of a country as the currency loses its relative value very rapidly. However, workers' wages do not increase on par with this kind of inflation. Further, foreign investors also start divesting their capital from businesses.
• Hyperinflation: In such an economic condition, the inflation rate becomes over 50%. As a result, most people lose their purchasing power and fail to afford commodities and services due to their skyrocketing prices. However, this is a rare situation and does not happen quickly.  Hungary faced such economic conditions in 1945 when prices of goods and services doubled every 15 hours.
• Deflation: Deflation is when the economy encounters a negative inflation rate. In other words, the inflation rate becomes less than zero. As a result, the relative value of money increases and people prefer not to purchase. Prices of items decrease beyond an unprecedented level. People may decide to purchase things, anticipating prices will plummet further.

2. Types of Inflation According to Causes

Here are different kinds of inflation categorised according to the following causes:

• Demand-Pull Inflation: In this inflation, the demand for commodities increases more than the overall supply in the economy. Due to supply shortages, manufacturers get no choice but to increase the selling prices of their products to subdue customers’ growing demands.
• Cost-Push Inflation: In cost-push inflation, people’s demand for manufactured products remains more or less the same. However, manufacturers had to increase their goods' prices to balance the hike in production costs. It can happen due to less supply of raw materials or a rise in labour charges.
• Stagflation: Stagflation is a critical economic situation when the financial growth of a country becomes stagnant, but there are high unemployment and inflation rates. As a result, the country's policymakers encounter obligations to address all these problems simultaneously.

3. Types of Inflation According to Measures

Here are two types of inflation that you need to be aware of:

• Core Inflation: Core inflation includes prices of goods and services except for energy (oil) and food items. This type of measurement helps the central bank to know the inflation rate more accurately. This is because the prices of these excluded items are more volatile in nature.
• Shrinkflation: Shrinkflation is an unofficial way to calculate the inflation rate of a country. In this type of measurement, economists consider the rate of the decreasing amount of weight in packaged items. To combat the rising cost of production, manufacturers decrease the quantity of products inside packages keeping the selling price the same.

With inflation, the prices of commodities and services increase. Inflation up to a certain level demonstrates that an economy is booming. However, there are several types of inflation that an economy may encounter according to the growing or diminishing supply and demand. Inflation beyond a level can create an adverse situation for all the stakeholders of an economy.