Types of Inflation in Economics
                     Types of Inflation in Economics

What is Inflation?
Inflation is the phenomenon that increases the prices of goods and services in 
every sector. As the prices of things rise, it consequently lowers the buying power 
of the currency, meaning each unit of the currency will buy fewer goods and 
services. Despite the currency losing its value during inflation, slight inflation is 
considered good. The rate by which inflation is determined is known as the 
inflation rate. Although there are 12 types of inflation, three are considered the 
primary types.
1. Cost-Push Inflation
The reason behind this inflation is an increased demand for certain goods and services. 
When consumers’ demand increases, so do the production rate, and to sustain 
increased production, the consumption of raw materials also increases. This chain 
reaction causes a price hike in raw materials, causing the companies to charge more for 
their products. Since the production rate increases, the employees demand more 
wages as well, which is why it is also called wage-push inflation. The best example of 
cost-push inflation is the oil crisis in the US. In 1973, the Organization of Petroleum 
Exporting Countries (OPEC) decided to restrict the supply of oil to the United States, 
and at the time, the US was heavily reliant on oil for everything from production to 
travel. This restrictive supply resulted in the price of oil rising up to 400 percent.
2. Demand-Pull Inflation
Although the fundamentals of this inflation are similar to cost-push inflation, it 
focuses on the aggregated demand in the macroeconomics. It mostly applies to 
households, businesses, governments, and foreign buyers. Demand inflation 
occurs when the demand in a specific segment increases; however, the supply is 
not able to keep up. During demand inflation, the government can lower taxes, 
which increases the demand once again, leading to inflation. Taking the example 
of the oil crisis in the United States once more, as the price of oil soared, the 
demand for fuel-efficient cars raise exponentially, resulting in overburdened 
automobile manufacturing. Seeing a sudden surge in a specific market, the 
government lowered taxes, causing inflation.
3. Built-in Inflation
As the name suggests, this inflation is built-in within the economy, whether it be 
from previous economic decisions or by the present changes to the economic 
scene. When the workforce demands an increase in their wages because of the 
increased price of commodities, it is considered built-in inflation. Unsurprisingly, as 
the wages increase, so does inflation, resulting in an endless cycle of wage spiral.
Other Types of Inflation
1. Creeping Inflation
Also known as mild inflation, it occurs when the inflation is rising by 3 percent or even lower each year. 
Some nations only consider inflation as creeping inflation when it is rising by 2 percent at most. It 
generates a feeling in consumers that the prices of commodities will rise gradually, and they try to beat 
high future prices by buying quickly, resulting in heightened demand.
2. Walking Inflation
Unlike creeping growth that is beneficial to the economy, walking inflation can be detrimental, as the 
inflation rate is anywhere from 3 percent to 10 percent per year. While demand increases for the same 
reason during walking inflation as well, people end up buying more than their needs, causing a 
discrepancy in supply and demand.
3. Galloping Inflation
Befittingly called galloping inflation, this inflation occurs when the inflation rate jumps over 10 percent 
per year. The value of currency begins to decline rapidly, and wages become too little too quickly. 
During galloping inflation, multinational companies and investors bail out the country, and the economy 
begins to collapse.  Interested in learning more? Visit here
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