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Inflation:
Inflation means the condition of a substantial and rapid increase in the general price level which causes a decline in the purchasing power of money.
Features of Inflation:
Inflation is always accompanied by a rise in the price level. Inflation is a monetary phenomenon and it is generally caused by excessive money supply. Inflation is a dynamic process as observed over the long period. A cyclical movement of prices is not inflation. Pure inflation starts after full employment. Inflation may be demand pull or cost push. Excess demand in relation to the supply of everything is the essence of inflation.
KINDS OF INFLATION
1) According to Rate of Rise in Price:
i) Creeping inflation: When the rise in prices is very slow like that of a snail or creeper, it called creeping inflation. In terms of speed, a sustained rise in prices of annual increase of less than 3 percent per annum is characterized as creeping inflation. Such an increase in prices is regarded safe and essential for economic growth. ii) Walking inflation : When the rise in prices becomes more pronounced as compared to a creeping inflation, there exists walking inflation in the economy. Roughly, when prices rise by more than ten percent and within a range of 30 percent to 40 percent over a decade, or 3 to 4 percent a year, walking inflation is the outcome. Walking inflation presents a warning signal for the occurrence of running and galloping inflation. iii) Running inflation: When the movement of price accelerates rapidly, running inflation emerges. Running inflation may record more than 100 percent rise in prices over a decade. Thus, when prices rise by more than 10 percent a year, running inflation occurs.
iv) Galloping inflation: In the case of hyperinflation, prices rise every moment, and there is no limit to the height to which prices might rise; therefore, it is difficult to measure its magnitude, as prices rise by fits and starts. If, within a year, the prices rise by 100 percent, it is a case of hyperinflation or galloping inflation. 2. According to the factors influences money supply and demand for goods and services.
Peace time inflation : By this is meant the rise in prices during the normal
period of peace. Peace-time inflation is often a result of increased government outlays on capital projects having a long gestation period; so a gap between money income and real wage develops.
According to Coverage or scope point of view Comprehensive inflation : When prices of every commodity throughout
the economy rise, it is called economy-wide or comprehensive inflation. It is a normal inflationary phenomenon and refers to the rising prices of the general price level.
Profit inflation: The concept of profit inflation was originated by Keynes in his
Treatise on Money. According to Keynes the price level of consumption goods is a function of the investment exceeding savings. The considered the investment boom as a reflection of profit boom. Inflation is unjust in its distribution effect. It redistributes income in favor our of profiteers and against the wagering class.
True inflation : According to Keynes, when the economy reaches the level of
full employment, any increase in aggregate expenditure will raise the price level in the same proportion. This is because it is not possible to increase the supply of factors of production and hence of output after the level of full employment. This is called true inflation.