Different Types of Inflation (1)

There are different kinds of inflation. In terms of their speed, there are four main types, namely creeping, walking, galloping and hyperinflation.

Inflation is the steady increase of the overall price of goods and services over a period of time. It essentially means that your money buys less than it used to. While inflation takes different forms, and they are categorized in different ways.

In terms of their speed, there are four main types namely creeping, walking, galloping and hyperinflation. In terms of their causes, the types of inflation include: demand-pull inflation and cost-push inflation.

There are also other kinds of inflation in terms of their asset types. Here’s what they are about:

Creeping Inflation

As the name implies, creeping inflation talks about a form of inflation where prices increase at a gradual level slowly. As opposed to high rates of price increases, prices only move at very little rates.

Also known as mild inflation, the rates are usually lower than 3% annually. However, when you view the small effect of creeping inflation over the long term, it results in a huge spike in cost of living.

This form of inflation, however, is said to also drive economic activity. The idea is that consumers expect that prices will further increase. Hence, they buy or invest now so as to beat future higher prices.

As such, as opposed to having zero inflation, governments set inflation rates at around 2% to keep economic activities intact.

Walking Inflation

With walking inflation, the speed gets a little bit faster. The price increases at moderate levels which is typically a range of 3% – 7 or 10%.

Another way to think of walking inflation is where the inflation rate is a single digit. Walking inflation takes away the advantages of the regular creeping inflation and can be harmful to the economy as things get hot all too fast as people end up purchasing more than they need so as to avoid much higher prices.

It typically serves as a warning sign, signalling the government to control things it gets out of hand or further increases in speed.

Galloping Inflation

The third type of inflation based on speed is galloping inflation. At the stage of galloping inflation, prices of goods and services are already at double digits per annum.

Also known as jumping inflation, it spells disaster for any economy. At this point, many businesses will no longer be able to keep up with the level of inflation.

Employee income will also not be able to keep up with rising costs of pretty much everything. Investing also becomes too expensive and even foreign investments crash. Yet, this isn’t the worst level the rate of inflation can be.

Hyperinflation

At the hyperinflation, things are the worst they can be. This form of inflation is used to describe rapid and extreme price increases within an economy. This typically occurs when inflation rates are more than 50% monthly.

Without a doubt, they are extremely rare like during wars where governments have to print money to meet their expenses for the period.

In our next post, we will consider other forms of inflation and how they affect you as an investor.

Written by Lawretta Egba.