Do you know what inflation is? It's the rate of steady growth in the price level for products and services over a specific period. This phenomenon also shows the degree of money depreciation. Inflation is usually measured annually or, as economists also say, on a year-over-year basis. So, if an inflation rate is 8%, it means that a set of goods that cost $100 a year ago now costs $108.
All people, without exception, experience the consequences of inflation. This phenomenon affects many aspects of life, provoking changes in the labor market (higher unemployment rates) and in the number of loans (increasing demand for quick loans via services such as the Payday Depot App).
Types of Inflation by Growth Rate
There are several types of inflation depending on the growth rate:
Low (creeping) inflation. It’s up to 5-6% per year.
Moderate inflation. It’s up to 10% per year.
High (galloping) inflation. It’s up to 50% per year.
Hyperinflation. It’s over 50% per month. For example, in Germany, the inflation reached 30,000% per month in the early 1920s. In Zimbabwe, the monthly price increase in November 2008 was about 79,600,000,000%.
Deflation. It’s negative inflation characterized by an increase in the purchasing power of money and a steady decline in the price levels. For example, for $100, you can buy more than before.
Disinflation. It’s a slowdown in the inflation rate. For example, when the inflation level falls from 8.4% to 6%, the usual price level continues to rise but at a slower rate than before.
Types of Inflation by the Government’s Reaction
Inflation is also categorized by the government’s reaction:
Open type. This type is unchecked inflation, showing a real rise in prices without hidden factors and pressure. Inflation of open type adequately reflects changes occurring in a market economy, particularly growth or decline in supply and demand.
Hidden (suppressed) type. It’s government-regulated inflation. Freezing prices, establishing their maximum thresholds (limits), setting up maximum markups, and similar measures lead to an imbalance between supply and demand in the market. In addition, government price regulation slows down the entry of new technological high-quality products into the market. A manufacturer has no incentive or economic benefit to introduce a new product if they have to sell it at a set price.
Targeted type. This inflation type means that a country's central bank, which is the primary regulator, sets a specific goal (target and target level) or an acceptable range of price growth on the market. The state applies regulatory measures when there is a deviation from the target level. Inflation targets differ for different countries depending on their current economic situation. Although there is no clear definition of optimal inflation in economics, historical evidence suggests that advanced economies usually set inflation targets at 2%, while emerging market countries set them at 3% or higher. Targeted inflation positively affects the economy if it is predictable and long-term. Under these conditions, all participants understand what to expect from government policies regarding economic development.
