Causes
Wage Inflation
One of the primary causes of inflation is rising wages. This occurs when employers have trouble finding the skills they need in the labor market due to a growing economy. When inflation occurs, workers begin to demand more money. This can become a vicious cycle as wage inflation causes price inflation that causes more wage inflation.Monetary Inflation
Monetary inflation is sustained growth in the money supply of a nation. When a government creates more money there are more dollars chasing each purchase. This can cause price inflation. This can also be a vicious cycle as governments print money to pay their deficits but then need to continually print more as the value of that money declines due to inflation.Supply
A decline in supply. For example, a critical resource that declines in supply due to a war, trade war or resource exhaustion. This causes more competition for the resource and can dramatically raise prices in a short period of time.Demand
Increased demand for goods due to factors such as a healthy economy, high stock market and government spending.Severity
Creeping Inflation
Creeping inflation is an increase in prices of 0% to 3% per year. Mild inflation is considered healthy for an economy as it encourages people to invest their money and take risk to preserve the value of their savings.Walking Inflation
An increase in prices of 3% to 9% per year. This is generally considered too high as it is a level where people starting spending quickly and demanding wage increases as they notice the value of their money declining. This risks spiraling out of control.Stagflation
Inflation is usually associated with economic growth as it is driven by things like demand and money printing. However, unhealthy levels of inflation can also occur during a recession. This is a particularly grim prospect as people face declining earnings and increasing prices. Stagflation can occur due to a supply shock.High Inflation
An inflation rate of over 10% is considered unhealthy. This can disrupt normal economic activity as people and firms hoard goods because they expect them to rise in value. This can cause shortages and a breakdown of efficiency as business processes are disrupted by a shortage of inputs.Chronic Inflation
Chronic inflation is an unhealthy level of inflation that persists for more than 5 years in a nation. This typically occurs due to fiscal dominance.Hyperinflation
Extremely rapid price increases of more than 50% per month. This causes all savings to be wiped out. It also causes significant economic, social and political instability. Shortages are endemic and people revert to a barter system of economic exchange.Types
Price Inflation
Price inflation is a sustained increase in the price of goods and services.Asset Price Inflation
A sustained increase in the price of assets such as stocks, real estate and gold. As money declines in value, people typically prefer to hold physical assets as opposed to cash.| Overview: Inflation | ||
Type | ||
Definition | A sustained increase in general price levels. | |
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