Types of Inflation

Topics: Inflation, Supply and demand, Stagflation Pages: 3 (961 words) Published: September 25, 2011
Wage inflation - This is the typical situation in which supply exceeds demand (commonly referred to as the "demand-pull" occurrence, or "excess demand inflation"). When wage inflation occurs, the prices for the product or service increase, thus leading into the situation know as demand-pull. An example of this would be the dramatic changes in the economy during war.

Pricing Power Inflation - Commonly known as the "Administered Price Inflation", this occurs when business and individuals raise their prices retrospectively to increase their profits. On a side note, pricing power inflation does NOT occur during economic depression or financial drops.

Cost-Push Inflation - When an increase of price occurs in regards to the produce or maintenance of a service or product, the expected increase in price is the resultant effect. For an example, if a car manufacturer paid more for a vital part of an engine, the labour cost would decrease to counter the new price.

Sectoral Inflation - This occurs when the price of one product directly affects the price of another product or service. For example, you take a daily bus to work. If the price of oil rose, the bus company would have to ensure that their profit margin was not lost by raising the fare for tickets. This type of inflation occurs generally across the retail aspect of the world, affecting prices when the production cost increases for example.

Stagflation - The is the situation in which the inflation continues to rise despite the economy not following suit, in other words when prices rise even though the country is in recession. This type of inflation can have disastrous effects but is generally a short lived form of inflation as it could potentially lead to a financial crisis.

In addition to the types of inflation described above there are also certain degrees of inflation, such as;

Mild inflation being where there is a gradual but slow increase per annum in regards to the price. It can show the the...
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