16.8. Inflation and its Types
Definition : Inflation may be defined as a process of sustained rise in
general price level. It is a disequilibrium situation. Thus, inflation means
rising prices and not merely high prices. If prices are very high but remain
constant at that level, it will not be called inflation. Secondly, the rise in
prices must be sustained i.e., prices must be continuously rising.
, INFLATION AND THE VALUE OF MONEY 543
According to J.M. Keynes, inflation Occurs when there is an excess of
plannedexpenditure over available output at full employment. According to
AC. Pigou, inflation occurs when money income rises at a greater ratethan
income-dreating activity. Again, HT. Colbourn thinks, inflation is asituation
inhich too much money is chasing too few goods. Remembering all these
definitions, we may say, inflation is the effect of maladjustment in money
supply, aggregate production and aggregate demand. This maladjustmnent
generally manifests itself through arise in the price level.
Types:: Inflation may be of different types. According tothe cause,,inflation
may be classified into the following types:
Demand pull inflation : When price level rises due to increase in
domand for output after achieving full employment, we call it demand pull
inflation,or, simply, demand inflation.
( ) Cost push inflation:When price level rises due to rise in cost of
roduction, that is, rise in input prices, we callit cost push inflation, or, simply,
cost inflation.
(G) Wage inflation:When the trade unions can 'independently' raise
the wage rate through collective bargaining and, as a result, price level rises,
we call it wage inflation or wage-induced inflation. This is one of the major
causes behind cost inflation.
(iv) Currency inflation: If price level rises due to rise in money supply,
wecall it currency inflation. This is a sub-category of demand inflation.
(v) Profit inflation: If the price level rises due to rise in profit and
thereby rise in aggregate demand, it is called profit inflation.
Inflation may also be classified according to the pace of rise in price level.
(1)Mild inflation: If price level rises very slowly but regularly, it is called
mild (or, creeping or crawling) inflation.
(2) Walking inflation: If price level continuously rises at a moderate
rate, we call it walking inflation.
we call it
(3) Hyper inflation: If price level rises at a very high rate,
hyper (or, galloping or run away) inflation.
Some other concepts of inflation are also in vogue.
rises before
(1) Semi-inflation and full inflation: When price level
achieving full-employment, it is called semi-inflation. On the other hand, if
economy, it is called
price level rises after achieving full employment in the
full inflation.
Stagflation: When stagnation of output and employment is coupled with
It is generally
asituation of continuous rise in price level, it is called stagflation.
be increased due to
Ound in less developed countrieswhere output cannot
lack of capital.
and Problem of
10.9, Demand Pull Inflation and Cost Push Inflation
their Distinction
ACCording to cause, inflation is basically of two types demand (pull)
asustained rise in price
inflation and cost (push) inflation. When there is
Definition : Inflation may be defined as a process of sustained rise in
general price level. It is a disequilibrium situation. Thus, inflation means
rising prices and not merely high prices. If prices are very high but remain
constant at that level, it will not be called inflation. Secondly, the rise in
prices must be sustained i.e., prices must be continuously rising.
, INFLATION AND THE VALUE OF MONEY 543
According to J.M. Keynes, inflation Occurs when there is an excess of
plannedexpenditure over available output at full employment. According to
AC. Pigou, inflation occurs when money income rises at a greater ratethan
income-dreating activity. Again, HT. Colbourn thinks, inflation is asituation
inhich too much money is chasing too few goods. Remembering all these
definitions, we may say, inflation is the effect of maladjustment in money
supply, aggregate production and aggregate demand. This maladjustmnent
generally manifests itself through arise in the price level.
Types:: Inflation may be of different types. According tothe cause,,inflation
may be classified into the following types:
Demand pull inflation : When price level rises due to increase in
domand for output after achieving full employment, we call it demand pull
inflation,or, simply, demand inflation.
( ) Cost push inflation:When price level rises due to rise in cost of
roduction, that is, rise in input prices, we callit cost push inflation, or, simply,
cost inflation.
(G) Wage inflation:When the trade unions can 'independently' raise
the wage rate through collective bargaining and, as a result, price level rises,
we call it wage inflation or wage-induced inflation. This is one of the major
causes behind cost inflation.
(iv) Currency inflation: If price level rises due to rise in money supply,
wecall it currency inflation. This is a sub-category of demand inflation.
(v) Profit inflation: If the price level rises due to rise in profit and
thereby rise in aggregate demand, it is called profit inflation.
Inflation may also be classified according to the pace of rise in price level.
(1)Mild inflation: If price level rises very slowly but regularly, it is called
mild (or, creeping or crawling) inflation.
(2) Walking inflation: If price level continuously rises at a moderate
rate, we call it walking inflation.
we call it
(3) Hyper inflation: If price level rises at a very high rate,
hyper (or, galloping or run away) inflation.
Some other concepts of inflation are also in vogue.
rises before
(1) Semi-inflation and full inflation: When price level
achieving full-employment, it is called semi-inflation. On the other hand, if
economy, it is called
price level rises after achieving full employment in the
full inflation.
Stagflation: When stagnation of output and employment is coupled with
It is generally
asituation of continuous rise in price level, it is called stagflation.
be increased due to
Ound in less developed countrieswhere output cannot
lack of capital.
and Problem of
10.9, Demand Pull Inflation and Cost Push Inflation
their Distinction
ACCording to cause, inflation is basically of two types demand (pull)
asustained rise in price
inflation and cost (push) inflation. When there is
