The following article will guide you about the six main types of inflation. The types are: 1. True Inflation and Partial Inflation 2. Deficit-Induced Inflation and Wage-Induced Inflation 3. Creeping (or Persistent) Inflation and Runaway (or Galloping) Inflation 4. Currency Inflation and Credit Inflation 5. Profit Inflation and Commodity Inflation 6. Sellers’ Inflation.
Type # 1. True and Partial Inflation:
Inflation found during the period of full-employment is described as true inflation. During full employment the output of goods and services cannot be increased any more. Any increase in total spending or total quantity of money during full employment causes the prices to rise persistently, and such inflationary price-rise is called true inflation.
But sometimes inflation may appear even before the stage of full employment on account of the short supply of some essential factors, for which the production or supply of goods and services cannot be increased proportionately with the increase in spending or quantity of money. Such an inflation is described by Keynes as partial inflation due to an incapability of the shifting or resources to match with the change in the structure of demand or on account of bottlenecks in supply of some factors.
Type # 2. Deficit-Induced and Wage-Induced Inflation:
Inflation which is the outcome of the new issue of paper notes for financing government’s war or development expenditures is designated as deficit-induced inflation. During war or development planning, the government is often compelled to print new paper notes for covering huge budget deficits.
But the production of goods and services cannot be increased proportionately during such times, causing an inflationary rise in prices known as deficit- induced inflation. Wage-induced inflation, on the other hand, arises when the prices rise persistently under the impact of increase in wages. If wages are raised under the pressure of trade unions to meet the higher cost of living, the spending by the workers will increase.
But, if the supply of goods does not increase proportionately, the prices will rise. This type of inflation is called wage-induced inflation. Here wage rise and price-rise react on each other to develop a situation known as wage-price spiral (i.e., the increase in prices is partly the result and partly the cause of increase in wages and other incomes).
Type # 3. Creeping (or Persistent) and Runaway (or Galloping) Inflation:
From the standpoint of the speed of price rise, inflation may be classified into creeping inflation and runaway inflation. Creeping (or persistent) inflation refers to a situation in which the volume of purchasing power is persistently running ahead of goods and services, with the result that there is a persistent tendency for prices to rise.
In such a situation the prices rise persistently but not rapidly. Runaway inflation (or galloping or hyperinflation), on the other hand, occurs when a creeping inflation goes out of control and the prices rise very rapidly, with the result that the value of money declines rapidly to a tiny fraction of its former value and eventually to almost nothing. Inflations of this kind occurred after both the world wars—in Germany, Austria, Poland, etc. are also described as a runaway inflation.
Type # 4. Currency and Credit Inflation:
Inflation which occurs due to an undue currency expansion is described as currency inflation, while inflation which develops owing to an excessive expansion of bank credit is called credit inflation.
Type # 5. Profit and Commodity Inflation:
Profit inflation occurs when costs are falling but prices are kept stable (as in the US during 1942-29). In this state of affairs, although prices remain stable, a country develops all the symptoms of inflation due to a continuous fall in costs. It is to be distinguished from ‘commodity inflation’ in which prices of goods rise proportionately more than the rise in costs.
Type # 6. Sellers’ Inflation:
The modern writers like A. P. Lerner, P. A. Samuel- son and others have mentioned a new kind of inflation known as the sellers’ inflation. It occurs when all the sellers of goods and of productive factors try to push up the prices further in a period of rising prices caused by increased government expenditures or by rising costs of materials. It is said that inflation in most of the countries of the world today is of this type.