WHAT IS INFLATION and WHAT ARE THE TYPES OF INFLATION?
Inflation is an economic phenomenon in which the prices of goods and services increase and therefore cause a decrease in purchasing power. If the demand for goods and services exceeds the supply, increases in costs occur.
It is of great importance that inflation is at a reasonable level for economies to be healthy and stable. Therefore, inflation rates up to 2% are considered reasonable for economies. On the other hand, high inflation requires to be fought by the necessary authorities of the state because it complicates economic conditions, leads to income inequality, and creates an unpredictable economic environment. There are 4 widely-known types of inflation.
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Moderate Inflation: It is a type of inflation in which prices rise slowly but continuously over a certain period. In this case, the inflation rate is at the level of 2% and 3%, and this rate is considered normal for economies. Consumers do not postpone consumption in order not to face high prices in the future, and this situation encourages economic growth.
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Walking Inflation: It is a type of inflation in which the increase in prices of goods and services increases gradually, and does not rise suddenly, about 3%-10%.
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Galloping Inflation: It is a type of inflation in which goods and prices in the economy rise rapidly within a year and exceed 10%. It is defined as an inflation that is difficult to control and is a harbinger of hyperinflation.
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Hyperinflation: It is the type of inflation in which price increases reach an uncontrollable level, reaching rates of more than 50% per month. It has a devastating effect on economies.
According to the source, inflation is divided into two:
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Demand Inflation: Demand inflation occurs when the demand for goods and services in an economy is higher than the supply or production. As long as this situation is not balanced by supply, prices will continue to increase.
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Cost Inflation: It is the type of inflation that increases production costs and this is reflected first to the consumer and then to the economy as a whole.
Bibliography:
Moderate Inflation: Definition & Examples | Vaia (hellovaia.com)
Inflation in Economics: What It Is, Definition, Meaning, Causes - Just2Trade (j2t.com)
