Inflation affects
the economy at different levels. It vary from vary mild to very strong in
nature. These are classified into different types of inflation, and each will
have its own impact on the economy.
There
are types of inflation, they are;
1)
Hyperinflation
It
is the extreme form of inflation. It is also called runaway inflation or
Galloping inflation. In hyperinflation people will lose confidence in the
currency’s efficiency to carry out the functions on money and will become
unacceptable as medium of exchange.
2)
Creeping inflation
In
creeping inflation prices of
goods and services rise at very low level and economists are of the opinion
that, it gives optimism and in turn increase productivity and output.
3)
Suppressed inflation
It
is the situation where the effect of inflation can be minimised by the use of
price control by the government.
There
are some consequences of inflation.
These consequences will create many adverse impact on the economy, with regard
to its distribution, saving, finance and balance of payment.
(1)When
the inflation taken place, some people are able to gain more some people are
able to gain more income. While the poor loose the purchasing power of their
total income. This situation creates inequalities
of distribution of income.
(2)
As a result of inflation the saver will get only a reduced value of the
amount saved. Therefore inflation is sometimes referred to as tax on savings
(3)
The value of money borrowed is greater than the value of money repaid after
inflation. The borrower gains and
lender loses their purchasing power.
(4)
At inflation the domestic prices will go up so that exports suffer. At the same time import increases because of
comparative lower prices. This will cause a deficit in balance of
payments.
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