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Types of Inflation: Greedflation, Demand-Pull Inflation, Cost-Push Inflation, Hyperinflation

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Types of Inflation

Greedflation

  • Context (TH): Economists have questioned the validity of the argument that corporate thirst for higher profits is the cause behind inflation.
  • Greedflation refers to a situation where excessive greed and speculative behaviour contribute to rising inflationary pressures in an economy.
  • It implies that inflation is driven not only by economic fundamentals but also by excessive profit-seeking motives and speculative activities.

Demand-Pull Inflation

  • Demand-pull inflation occurs when aggregate demand in an economy exceeds the available supply of goods and services.
  • Demand-pull inflation is often associated with strong economic growth, increased consumer spending, and excessive monetary expansion.

Cost-Push Inflation

  • Cost-push inflation is driven by increased production costs, such as wages or raw material prices, which are then passed on to consumers.
  • Cost-push inflation can lead to a decrease in real wages and consumer purchasing power.

Built-In Inflation

  • Built-in inflation, also known as wage-price spiral or internal inflation, refers to a self-perpetuating cycle of rising prices and wages.
  • It occurs when workers demand higher wages to keep up with the increasing cost of living, and businesses, in turn, increase prices to compensate for higher labour costs.
  • This reciprocal process leads to a continuous upward spiral of prices and wages.

Hyperinflation

  • Hyperinflation is extreme and rapid inflation where prices increase at an extremely high rate.
  • It typically occurs due to a severe loss of confidence in the currency, often triggered by excessive money supply, political instability, or unsustainable fiscal policies.
  • Hyperinflation erodes the currency’s value rapidly, leading to an economic breakdown.

Structural Inflation

  • Structural inflation arises from long-term imbalances in the economy’s structure, such as supply constraints, inefficiencies, or structural rigidities.
  • It is typically caused by factors like limited productive capacity, inadequate infrastructure, or barriers to competition.

Imported Inflation

  • Imported inflation occurs when:
    1. the prices of imported goods and services rise due to changes in exchange rates, commodity prices, or trade policies.
    2. a depreciation in the domestic currency raises the cost of imported goods.
  • Countries heavily reliant on imports may experience imported inflation when prices rise globally.
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