Describe the classifications of inflation

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1. Classification on the basis of inducement
• Currency-induced inflation. This occurs when supply of money exceeds the available output of goods and services leading to an inflationary increase in prices.
• Credit-induced inflation. This occurs when prices increase on account of an expansion of credit without increasing the quantity of money.
• Foreign trade-induced inflation. This occurs when a country experiences a sudden rise in the demand for its exports against the inelastic supply of exports in the domestic market hence increasing the demand and price level at home.
• Scarcity-induced inflation. This occurs when supply of goods does not increase the account of natural calamities hence increasing the price levels.
• Deficit-induced inflation. This occurs when a government covers the deficit in its budget through making new money. Tis results to an increase in the purchasing power of the community without a simultaneous increase in production.
• Wage-induced inflation. This occurs when rising wages increasing the general price levels profit-induced inflation. If the producers due to their monopoly position tend to mark-up their profits margin, it will lead to profit-induced inflation and higher profits raise the cost of production which in turn pushes up the prices.
2. Classifications on the basis of speed.
• Creeping inflation. Under creeping inflation, prices rise about 2 percent annually.
• Walking inflation. Under walking inflation, prices rise by about 5 percent annually.
• Running inflation. Under running inflation, prices rise by about 10 percent annually.
• Galloping or hyper-inflation. This type of inflation starts when the level of full employment is reached. Price increase is over 10 percent annually.
3. Classification on the basis of time
• Peace-time inflation. This is inflation during the normal peace time. It occurs when the government increases expenditure on development projects which normally have longer gestation periods. A gap rises between the generation of money income and the final availability of goods leading to rise in prices.
• Post-war inflation. This occurs after the end of the war when pent-up demand finds open expression. Heavy taxes which have been imposed during the war are withdrawn during post-war period. As a result the disposable income of the people increases without increase in the output hence increasing the prices.
• War-time inflation. During war time unproductive government expenditure increases and the prices rise because the increase in output does not keep pace with the expansion of expenditure.

skilled writter answered the question on May 1, 2018 at 16:20

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Describe the classifications of inflation

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