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Economic Theory

Whereas deflation is negative economic growth, such a –5 %,
disinflation is simply a reduction in the rate of inflation, such the inflation
going from 9 % one year to 7 % the next year. It occurs when the rate at
which the prices are raising is diminishing. It is important to note that it

does not signal the slowing down of the growth of the economy; it signals
a slow in the growth rate of inflation.

Demand-pull inflation is loosely described as “too much money
chasing too few goods”. This refers to the situation where general price
level rises because the demand for goods and services exceeds the supply
available at the existing prices.

Cost-push inflation is induced by rising costs, including wages, so
that rising wages and other costs push up prices. We can also speak of
wage inflation or price inflation when we mean increase in wages or

prices.
Сreeping inflation. Creeping or mild inflation is when prices rise 3%
a year or less. According to the U.S. Federal Reserve, when prices rise 2%
or less, it is actually beneficial to economic growth. That is because this

mild inflation sets expectations that prices will continue to rise. As a result,
it sparks increased demand as consumers decide to buy now before prices
rise in the future.

Walking inflation. This type of strong, or pernicious, inflation is
between 3–10 % a year. 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 cannot keep up. More important, neither can wage. As a
result, common goods and services are priced out of the reach of most

people.
Galloping inflation. When inflation rises to ten percent or greater, it
wreaks absolute havoc on the economy. Money loses value so fast that
business and employee income cannot keep up with costs and prices.

Foreign investors avoid the country, depriving it of needed capital. The
economy becomes unstable, and government leaders lose credibility.
Galloping inflation must be prevented.

Hyperinflation is often defined as inflation that exceeds 50 percent
per month, which is just over 1 percent per day. Compounded over many
months, this rate of inflation leads to very large increases in the price level.
It is fortunately very rare. In fact, most examples of hyperinflation have

occurred when the government printed money recklessly to pay for war.

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