Inflation is a process in which the price level is rising and the money is losing its value. Inflation occurs when quantity of money in circulation increases beyond the requirements. Inflation has been defined in different ways by different economists; some of the definitions are as under:
According to R.P.Kent:
“Inflation is nothing more than a sharp upward movement in the price level”.
According to Coulborn:
“Inflation means too much money chasing too few goods”.
According to Pigue:
“Inflation exists when money income is expanding more than in proportion to income earning activities”
Types of Inflation
On the basis of rate of inflation:
Following are the types of inflation on the bases of rate of inflation.
1. creeping inflation :- When the increase in the price level is not more than 2% per annum, the inflation is called creeping inflation.
2. walking inflation :- In walking inflation, the price level increases more rapidly than in creeping inflation. It may go to 5% p.a
3. running inflation:- A general rise in price level upto 8% to 10% p.a. is called running inflation.
4. galloping inflation :- In a situation where price level rises very rapidly within a short period of time, the inflation is called galloping inflation.
On the basis of degree of control
Inflation is classified into the following categories on the basis of degree of control:
1) open inflation :- The situation when inflation gets out of control and cannot be suppressed by the government price control or any other similar steps.
2) suppressed inflation :- The situation when government is in a position to control inflation by its price control policy.
On the basis of Causes
Inflation can be divided into categories on the basis of its causes.
1. demand pull inflation :- When demand for goods and services is more than their supply, the price level of these goods and services will rise causing demand pull inflation.
2. cost push inflation :- When the cost of production or the remuneration of factors of production increases, there will be an increase in prices causing cost push inflation.
3. profit induced inflation :- Sometimes the businessmen increase the prices of their products only to increase their profit margin. It causes profit induced inflation.
4. budgetary inflation :-When the government covers the budget deficit by borrowing money, budgetary inflation will be caused.
5. wage spiral inflation :- Workers often demand increase in wages. If wages are increases, the cost of production will rise and prices of the products will go up. This inflation is called wage spiral inflation.
6. imported inflation :- Imported inflation is caused by the increase in the prices of the imported goods which are used as raw material in domestic production.
7. devaluation inflation :- Devaluation makes the domestic currency cheaper in terms of foreign currencies. It results in the increased prices. The inflation thus caused is known as devaluation inflation.