Types of Inflation
Walking Inflation /Trotting Inflation
When prices rise by more than 3%, but less than 10% per annum (i.e., between 3%, and 10% per annum), it is called as Walking Inflation.
According to some economists, we must take Walking Inflation seriously as it gives a cautionary signal for the occurrence of Running inflation.
》It is harmful to the economy because it heats up economic growth too fast. People start to buy more than they need, just to avoid tomorrow's much higher prices.
》This drives demand even further so that suppliers can't keep up. More important, neither can wages.
》As a result, common goods and services are priced out of the reach of most people.
Galloping Inflation
When prices of goods & services rise at a double,triple digit rate per annum, that situation is known as Galloping Inflation. When inflation rises to 10% or more, it absolutely damages the economy. Money loses value so fast that business and employee income can't keep up with costs and prices.
Galloping inflation is also known as jumping inflation. The economy becomes unstable, and government leaders lose credibility.
It is a serious problem for an economy and causes various economic distortions and disturbances.
Causes
✒Fiscal policy changes
✒Money loses purchasing power
✒Decline in aggregate supply or output
✒Rise in price of raw material
✒Demand for higher wages
Venezeula's inflation is best example of Galloping Inflation.
Running Inflation
When prices rise rapidly like the running of a horse at a rate of speed of 10% - 20% per annum,
it is called running inflation.
Its control requires strong monetary and fiscal measures, otherwise it leads to hyperinflation.
Causes of Inflation: Inflation arises when the aggregate demand exceeds the aggregate supply of goods and services.
Difference between Galloping & Running Inflation
When prices rises between 20% to 100% per annum or even more, it is called Galloping Inflation and
In Running inflation price rises rapidly 10 to 20% per annum.
Hyperinflation
Hyperinflation is when the prices of goods and services rise more than 50% a month.
Hyperinflation is extremely fast or out-of-control inflation. IT occurs when price increases are so wild that the concept of inflation is meaningless. Although hyperinflation is considered to be rare, it occurred as many as 55 times in the 20th century in countries such as China, Germany, Russia, Hungary and Argentina.
Causes
Hyperinflation starts when a country's government begins printing money to pay for its spending. As it increases the money supply, prices rise as in regular inflation.
Effects
To keep from paying more tomorrow, people begin hoarding. That stockpiling creates shortages. It starts with durable goods, such as automobiles and washing machines. If hyperinflation continues, people hoard perishable goods, like bread and milk. These daily supplies become scarce, and the economy falls.
Wage Push Inflation
Also called cost-push inflation or a wage-price spiral, wage-push inflation is an economic term that describes how prices increase when wages increase.
Wage push inflation is an overall rise in the cost of goods that results from a rise in wages. To maintain corporate profits after an increase in wages, employers must increase the prices they charge for the goods and services they provide. The overall increased cost of goods and services has a circular effect on the wage increase; eventually, as goods and services in the market overall increase, higher wages will be needed to compensate for the increased prices of consumer goods.
Core Inflation
Core inflation is the change in costs of goods and services, but does not include those from the food and energy sectors. This measure of inflation excludes these items because their prices are much more volatile. It is most often calculated using the consumer price index (CPI).
Importance of Core Inflation
It is important to measure core inflation because it reflects the relationship between the price of goods and services and the price of consumers' general income. If goods and services increase over time but the income of consumers does not, consumers will have weaker buying power since the value of their money decreases in comparison to the value of basic goods and services. However, if inflation happens to consumers' income and nothing changes with the prices of goods and services, consumers will have better buying power and can afford more of the same goods and services.
Housing Inflation
Housing inflation is a situation of a sustained increase in the general price of house and property level in an economy. Inflation means an increase in the cost of living as the price of real estate housing rise.
There are a lot more factors that affect house prices and the correlation is not as prominent.One of the other major factors that causes house prices to increase is interest rates. When interest rates are low, buying homes can be more affordable and increase the demand for homes. If the supply of homes remains constant and the demand increases, then the prices of homes will increase. In large cities where land availability is often limited, you can see a more pronounced effect of inflation.
Housing Inflation stood at 5.2% compared to 5.32% in December.
We at Finveda Wealth Management Pvt. Ltd. advise our clients to invest in those products which beats the inflation and the positive real returns and we are the one of the best financial advisors in Hyderabad and one of the top mutual fund advisors in Hyderabad.
Mutual Fund investments are subject to market risk kindly read all documents carefully before investing.
Mutual Funds Sahi Hai per Sahi Advisor Jaroori hai. For best Financial Advise contact Finveda Wealth Management Pvt. Ltd., one of the best financial advisors in Hyderabad.
