What are the Different Types of Inflation & Their Impact

Last Updated: 12 Aug 2025

Inflation surfaces in many guises. By dissecting the types of inflation, we see how each variant, mild or extreme, erodes purchasing power. Fully grasping the various types of inflation equips households and policymakers to cushion shocks before they snowball into crises.

What is Inflation?

Inflation is the steady climb in overall prices that eats into a currency’s buying strength. When costs rise broadly, wages and savings lose real value. Explaining the phenomenon demands we identify and explain the types of inflation that spark it, from demand surges to supply shocks. Studying inflation classification, whether demand-pull or cost-push, reveals why a loaf of bread or a litre of fuel costs more today than yesterday.

Different Types of Inflation

There are different types of inflation, which are explained below:

Creeping Inflation

This is also known as mild inflation or moderate inflation. This type of inflation occurs when the price level persistently rises over a period of time at a mild rate. When the rate of inflation is less than 10 per cent annually, or it is a single-digit inflation rate, it is considered to be moderate inflation.

Galloping Inflation

If mild inflation is not controlled, it can turn into galloping inflation, which is much faster. Galloping inflation happens when prices go up very quickly, like 20%, 100%, or even 200% in one year. Some countries in Latin America, such as Argentina and Brazil, had inflation rates between 50% and 700% each year during the 1970s and 1980s.

Hyperinflation

It is a stage of a very high rate of inflation. While economies seem to survive under galloping inflation, a third and deadly strain takes hold when the cancer of hyperinflation strikes. Nothing good can be said about a market economy in which prices are rising a million or even a trillion per cent per year. Hyperinflation occurs when prices go out of control and the monetary authorities are unable to impose any check on it. Germany had witnessed hyperinflation in the 1920s.

Stagflation

It is an economic situation in which inflation and economic stagnation or recession occur simultaneously and remain unchecked for a period of time. Stagflation was witnessed by developed countries in the 1970s, when world oil prices rose dramatically.

Deflation

Deflation is the reverse of inflation. It refers to a sustained decline in the price level of goods and services. It occurs when the annual inflation rate falls below zero per cent (a negative inflation rate), resulting in an increase in the real value of money. Japan suffered from deflation for almost a decade in the 1990s.

Measures of Inflation

Economists monitor several inflation rate types to quantify price pressures:

• Consumer Price Index (CPI) gauges retail outlays – vital when comparing categories of inflation like food versus housing.
• Wholesale/Producer Price Index (WPI/PPI) tracks factory-gate costs and hints at future retail jumps in specific types of inflation.
• GDP Deflator spans all goods and services, clarifying numerous types of inflation across an economy.
• Core CPI/PCE strips volatile food and energy, isolating persistent inflation rate categories that guide policy.

How Inflation Impacts Prices

Inflation makes prices go up, and there are various types of inflation seen in the economy. To explain the types of inflation, think of demand-pull, cost-push, and built-in inflation as each type can push prices higher. Knowing the types of inflation rate helps us see how much prices change, and thus understanding them is vital for everyone. By looking at the types of inflation and their examples, we can see how prices rise with demand or higher production costs. Specific examples, like high food prices or house prices, show this clearly.

When you examine the types of inflation, you understand what causes prices to rise. The many types of inflation tell us whether the reason is that people want more things or if it simply costs more to make products. People and businesses use different types of inflation to plan for the future. So, by studying the various types, we get a clear picture of why things cost more.

How Can We Plan Our Finances During Inflation

• Diversify into real assets and inflation-protected securities to hedge against types of inflation and examples like demand-pull bursts.
• Shrink variable-rate debt before the types of inflation drive interest costs higher.
• Expand emergency funds; each inflation classification episode can last longer than forecasts.
• Lock fixed-rate mortgages and bulk-buy staples to offset certain categories of inflation.
• Upskill or add side income so wage growth outpaces the inflation rate.
• Rebalance portfolios often; different types of inflation reward assets unevenly.

Conclusion

Mastering every angle of all types of inflation, their roots, metrics, and remedies, helps individuals and governments navigate stormy price cycles. Recognising the many types of inflation early enables smarter budgeting and steadier growth despite relentless upward pressure on costs.

Frequently Asked Questions

1. What are the main different types of inflation?

They include demand-pull, cost-push, built-in wage-price spirals, and hyperinflation – four types of inflation watched closely by economists.

2. Why track multiple inflation rate types?

Each gauge highlights specific inflation classification angles, housing, energy, or wholesale costs, providing a fuller picture.

3. How do types of inflation and examples affect savings?

Cost-push surges from oil shocks erode deposits faster than gradual demand-pull rises, illustrating categories of inflation households must hedge against.

4. Can moderate inflation be healthy?

Yes, mild advances across all types of inflation spur spending and investment, preventing deflationary stagnation.