Types Of Inflation, And Its Effect On The Economy

Whenever we hear the word “Inflation” it’s always something bad going to happen. But, could it be good for the economy?

Let’s first know what’s “Inflation”, it’s the increase in consumer goods and services price cause of producing several banknotes more than those goods and services itself. Or vice versa, which means there is a production surplus remains from the overall supply, or maybe because of the increase in production cost itself. A lot of causes could lead to inflation. Therefore, we must mention that there are four types of inflation.

The “normal inflation” when the population increases the need for goods and services will increase, in this case, the government must involve facilitating the people’s life by producing more banknotes without cover which lead to increase in prices. And this is the most common type between countries, and that’s why governments always launch birth-control awareness campaigns to reduce the impact of population density.

Another type of inflation called “Attractive demand inflation” and this type always exists whenever the countries are increasing in prices because of the huge surplus in overall demand locally or internationally. This could be a temporary situation, or it could continue for a long time like what’s happening with the seasonal products (food, toys. etc. ) in such cases the amount of spending does not match the actual amount of production.

The third type of inflation called “Infiltrated inflation” and it’s quite the same as normal inflation, but it happens when we face a decrease in production and an increase in prices. In this stage the consumer behavior changes to aggressive spending for the same products even if they don’t need it, for the time being, instead people save it as an inventory to avoid any increase in prices that could happen in the future. And that infiltrated inflation always holds back growth.

The fourth type of inflation called “Runaway inflation or hyperinflation”, this type is very rapid and almost impossible to reduce. Usually, this type happens at the beginning of any transforming phase from economic stage to another, or the phase after the war is ending, we consider this type is the worst because people always lose trust in the current economic rulers.

In the end, we cannot assume if the increase/decrease in supply and demand is good or bad inflation unless we are fully aware of our country’s situation and the resources we own. Most of the studies mentioned that inflation could be good or bad for the economy, but it depends on the causes leads to this inflation and if the country succeeded to find the main reason behind that inflation. Therefore, countries should set proper monetary and anti-inflation policies so they can have a positive impact.