What is inflation?

Inflation means generally a considerable rise in the general level of prices.How

ever, there is no universally acceptable definition of inflation.For example:
Acc.to Samuelson, inflation denotes a rise in the general level of prices.
Acc.to Ackley, inflation is a persistent and appreciable rise in the general l
evel of prices .

Inflation is generally classified on the basis of its:

RATES
CAUSES

There are three types of inflation ,which are:

MODERATE INFLATION
GALLOPING INFLATION
HYPER INFLATION

There are two types of inflation,which are:

DEMAND-PULL INFLATION
COST-PUSH INFLATION

MODERATE INFLATION
A single digit rate of annual inflation is called moderate inflation or creeping in
flation .During the period of moderate inflation,price increase but at a moderate
rate.
An important feature of this type of inflation is that it is predictable and peo
ple hold money as a store of value.
For e.g.,India has had a moderate rate of inflation during the post-independence
period,except in few years.The present rate of inflation in India is 9.8% which
considered to be moderate.

GALLOPING INFLATION
A very high rate of inflation is called galloping inflation.
Acc.to Baumol, it refers to an inflation that proceeds at an exceptionally high ra
te. they do not specify what rate of inflation is exceptionally high .
For e.g.,the post World War-I inflation in Germany is galloping inflation.The wh
olesale prices in Germany increased by 140% in 1921.
HYPER INFLATION

Hyper inflation takes place when prices shoot up at more than three-digit rate p
er annum.
During the period of hyper inflation,paper currency becomes worthless.
Hungarian inflation of 1945-46 is an example of hyper inflation,infact the worst
case of inflation ever recorded.
In Hungary, rate of inflation averaged about 20,000 per cent per month for a year
and in the last month prices skyrocketed 42 quadrillion per cent.

DEMAND-PULL INFLATION
Demand pull inflation which is occurred due to increase in the aggregate demand
for the products and services.
Due to higher aggregate demand, profit margins of producers also increase so the
y try to produce more by utilizing all the resources.
But resources are scarce therefore disequilibrium between demand and supply aris
es. It means that people demand more than the available supply so prices shoot u
p.

COST-PUSH INFLATION

Cost push inflation is a type of inflation which is occurred due to increase in

the costs of products and services.
The basic phenomenon is that manufacturing firms acquire goods and services at t
he higher prices due to which they earn lower profits. So in order to earn the r
equired amount of profits these firms pass on their increased costs to the consu
mers and thus inflation emerges.
Usually cost of the production increases due to such factors as higher demand fo
r wages, increased tax burden by government, higher prices of raw materials etc.