In inflation, too much money chases too few goods. It affects poor more than rich and distributes income in favor of rich. Thus, inflation leads to more inequality in the society, helps rich get richer and poor get poorer. Thus, Inflation is regressive in nature and hits lower class more. Inflation hits the savings and also makes people think to earn more by speculation.
Types of Inflation
There are four main types of inflation, categorized by their speed. They are
There are specific types of asset inflation and also wage inflation. Some experts say demand-pull and cost-push inflation are two more types, but they are causes of inflation. So is expansion of the money supply.
Creeping Inflation: Creeping or mild inflation is when prices rise 3 percent a year or less. According to the Federal Reserve, when prices increase 2 percent or less it benefits economic growth. This kind of mild inflation makes consumers expect that prices will keep going up. That boosts demand. Consumers buy now to beat higher future prices. That’s how mild inflation drives economic expansion. For that reason, the Fed sets 2 percent as its target inflation rate.
Walking Inflation: This type of strong, or pernicious, inflation is between 3-10 percent a year. It is harmful to the economy because it heats up economic growth too fast. People start to buy more than they need, just to avoid tomorrow’s much higher prices. This drives demand even further, so that suppliers can’t keep up. More important, neither can wages. As a result, common goods and services are priced out of the reach of most people.
Galloping Inflation: When inflation rises to 10 percent or more, it wreaks absolute havoc on the economy. Money loses value so fast that business and employee income can’t keep up with costs and prices. Foreign investors avoid the country, depriving it of needed capital. The economy becomes unstable, and government leaders lose credibility. Galloping inflation must be prevented at all costs.
Hyperinflation: Hyperinflation is when prices skyrocket more than 50 percent a month. It is very rare. In fact, most examples of hyperinflation have occurred only when governments printed money to pay for wars. Examples of hyperinflation include Germany in the 1920s, Zimbabwe in the 2000s, and America during its civil war. More
Stagflation: Stagflation is when economic growth is stagnant but there still is price inflation. This seems contradictory, if not impossible. A condition of slow economic growth and relatively high unemployment – economic stagnation – accompanied by rising prices, or inflation, or inflation and a decline in Gross Domestic Product (GDP). Stagflation is an economic problem defined in equal parts by its rarity and by the lack of consensus among academics on how exactly it comes to pass.
Core Inflation: The core inflation rate measures rising prices in everything except food and energy. That’s because gas prices tend to escalate every summer. Families use more gas to go on vacation. Higher gas costs increase the price of food and anything else that has large transportation costs.
The Federal Reserve uses the core inflation rate to guide it in setting monetary policy. The Fed doesn’t want to adjust interest rates every time gas prices go up. More
Deflation: Deflation is the opposite of inflation. It’s when prices fall. It’s caused when an asset bubble bursts.That’s what happened in housing in 2006. Deflation in housing prices trapped those who bought their homes in 2005. In fact, the Fed was worried about overall deflation during the recession. That’s because deflation can turn a recession into a depression. During the Great Depression of 1929, prices dropped 10 percent a year. Once deflation starts, it is harder to stop than inflation.
