Speed of Inflation
There are four main types of inflation, categorized by their speed. They are creeping, walking, galloping, and hyperinflation.
Creeping Inflation (The Good One)
This is when the inflation rate rises by up to 3% each year.
It is good for economic growth since it drives consumers to buy now and avoid higher prices in the future. That boosts demand while production and wages have enough time to keep up.
Walking Inflation
This is when inflation is still in single digits, between 3% and 10%, and lasts for a longer period of time.
Inflation usually becomes a cause for concern when it goes over 4%. This type of inflation is damaging to the economy because consumers start buying way more than they need in order to avoid higher prices in the future. When that happens, the production and wages cannot keep up. Producers will increase their prices due to higher demand and because the wages are not growing people will not be able to afford some goods and services.
Galloping Inflation
This is when inflation rises above 10%.
At this rate, inflation becomes a serious problem and is hard to control. Money loses value at such a rapid rate that the wages have no chance of keeping up with the prices. It has huge adverse effects on the population of a country, especially the poor and the middle class. In order to control galloping inflation countries need to adopt strong fiscal and monetary measures.
Hyperinflation (The Scarry One)
When inflation reaches 50% a month (over 1000% a year) it is called hyperinflation.
😨This is the most extreme form of inflation and there have only been 58 episodes of hyperinflation in recorded history. Prices rise several times in a single day - something that costs $10 in the morning could cost $100 when you finish work in the afternoon. Money is becoming worthless at such a rate that the government has to print money in larger and larger denominations. You can end up paying $150 billion (Elon Musk's current net worth) for a loaf of bread... Prices rising at such a devastating rate leads people to start hoarding goods, leading to shortages of everything. In most cases, people will face severe food shortages. Savings, investments, and pensions become worthless because of the fall in the purchasing power of money. People stop using banks which leads to banks and other lenders going out of business. The collapse of the whole monetary system is inevitable.
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