The cost of buying the much delectable ice cream from the favorite brand few months away was lesser than it is today, why? That is because they have increased their prices owing to the effect of raw materials being higher in prices and reduction in the overall purchasing power, which forms the basis for an overall price rise in the economy in general which is termed as Inflation.
Let us understand the types
A constant and sustained increase rise in the price levels could be caused by different factors, the main types of inflation in the economy are:
- Moderate Inflation– a single digit annual increase in the general overall price level, when the markets are increasing moderately so is the inflation rate which is also referred as creeping inflation as it slowly makes it way and the impact stays for a long period of time, this moderate period may vary between two countries and is not sudden but predictable. One can associate this with the crude oil prices which have been increasing slowly with some exceptions and has this creeping effect of moderately high price
- Galloping inflation – a very exceptional and sudden rise in the price levels which has a galloping effect is termed this way, the difference between the two limits are very high making the worst effect in the economy of the country and has even its effect in the global scenario.
- Hyperinflation– in case of an alarmingly high price rise which is like a 3 fold increase is termed as hyperinflation which makes the paper currency worthless and people tend to look into trading with gold or silver in exchange of goods and services like the barter system.
- Demand Pull Inflation– this comes into existence when the aggregate demand increases than the aggregate supply, which is caused often by monetary factors like the reduction
in taxes by the government, increase in the supply of money, an upward trend in investments, all of which are due to monetary and real factors.
- Cost-Push Inflation– caused by monopoly groups which raise the price of raw materials, labor and other input costs which increase the cost of the final product, sometimes the monopolistic economy resorts to rise in prices by group of unions to increase the labor cost, termed as wage pull inflation also increases the prices due to an increase was done in the labor cost, pushing the prices to reach the attributed margin resorts to the profit-push inflation .