Day: July 14, 2018

Varied types of inflation that affect business

Inflation means a rise in prices because of the increase in the cash supply in the economy. This happens when there is abundant cash in the market and the value of the currency is depreciated. Depending on the rise in prices, there have been varied names given to inflation. However, you need to understand that the constant price rise will be of different magnitude. Listed below are few types if inflation faced by the business organization.

Creeping inflation– Creeping inflation is when the pace of price rise is very slow, like that of a snail. The rise in price below 3% is considered as creeping inflation. It is considered safe and it is necessary for the business and economy growth.

Trotting or walking inflation– This happens, whenever the rise in price is moderate and the rate of inflation is only a single digit. The rate of inflation will be always below 10%. It is actually a warning signal given to government to control it before it transforms into a running inflation. This does not create much impact and the business does not get affected.

Running inflation– When the rate of price rise is between 10 to 20% annually, it is known as running inflation. It affects mostly the middle class and the poor adversely. Small time and middle segment business get affected badly by this type of inflation. It requires strong fiscal and monetary measures to be adopted or else, hyperinflation will occur.

Hyperinflation– Hyperinflation is also known as galloping or runaway inflation. It happens when the rate of price rise is very fast and reaches double or sometimes triples digits. It ranges from 20 to 100% annually. In reality, it means the inflation reaches a point wherein the inflation rate turns into immeasurable and cannot be controlled at all. Every day the price rise will happen and it will, in turn, result in monetary system’s collapse due to steady and constant fall in money’s purchasing power. All the business organizations and the industries will be hit badly. And it will even end up in closing down of business because of the irrecoverable loss.

Semi-inflation– In this case, as the output increases, the rise in price will not happen. However, the increase in aggregate expenditure will result in facing supply shortage which cannot be substituted. It is also known as bottleneck inflation as there are bottlenecks in the supplies of few factors.