What is inflation? What are its types, causes and effects?

Inflation is known as inflation in the language of economics but in simple terms, it means a price rise.

Inflation is a state which has an impact on the entire nation. No region and class escape its influence. It has an impact on every class of the rich, the debtors, the appropriations, the traders, the salaried, the land owners, the government, the importers, the exporters, the workers, the consumers, etc. But the impact of inflation does not remain the same on the entire nation.

In the event of inflation, an abnormal balance (disequilibrium) arises which is always responsible for raising the price level. Thus, a special condition of inflation is that the amount of money (bank notes, currency notes, trends, or both) increases excessively.

Types of Inflation

The following is a description of the different forms of inflation:

Depending on the quantity or trend

On this basis, there are the following four forms of inflation:-

1. Creeping inflation (creeping inflation)
2. Walking Inflation (Walking Inflation)
3. Running inflation (running inflation)
4. Jumping or grossing inflation

Creeping inflation: In this situation, inflation increases gradually. That is to say, it grows by about 10% in 1 year.

Galloping Inflation: Inflation increases rapidly in this situation i.e. goes up to about 20,100,200 % in 1 year.

Walking Inflation: In this inflation, the price rise becomes moderate (3% to 7%) and if the annual inflation rate becomes one point, it is called walking inflation. It is a warning sign that inflation is going to rise now, so it should be controlled.

Running Inflation: This inflation starts to increase at a certain rate, then it is called running inflation. It mainly lives between 10 and 20%. Inflation at this rate has an impact on the economy and easily starts to stay at high levels.

Hyper-inflation: Inflation in this increases very fast, it becomes more than 30% in 1 year.

Stagflation (recession): In this, the state of inflation does not increase or decrease, in which the rate of its increase remains constant.

Deflation (deflation): In this, the rate of inflation falls below normal or it can even be said that the true value of money is revealed at this time.

• The four are different from each other in terms of the speed of increase in price. Their movement can be considered similar in the sense that its impact on the economy is highly contaminated.
• Sliding inflation is the first state of inflation and, according to some economists, it does not prove to be a terrible one for the economy. In fact, some economists also support this type of inflation because, in their view, this type of inflation makes it possible to increase the prices properly by ending the stagnation of the economy.
• They consider this form of inflation to be dangerous. Inflation is such a process of conception that, once established, continues to rise until it is terminated as a child is born. With the passage of time, the child stops moving, respectively, taking a walk, running, and finally jumping.
• The sliding inflation should be controlled initially and should not be given an opportunity to develop. Sliding inflation, under which prices rise in the long run with extreme imperceptibility, has been given great importance in Germany and the United States since 1956.
• Inflation that moves and runs is different because the pace of rising in prices under them is faster than the sliding inflation.
• When the rise in prices becomes more specific than the sliding inflation, it is a state of fluctuating inflation and this situation is indicative of the arrival of running and jumping inflation, the quantity of which is very difficult to measure. Because in these situations, the prices keep rising quickly.
• In the event of jumping inflation, the prices rise by a percentage point and there is no fixed ceiling for the rise of the prices.
• In the event of sliding inflation, the price rise occurs during a generation period, while in the case of walking, running, and quivering inflation, the increase takes place only in the minimum time such as 10, 5, and one year respectively.

Based on the procedure

The form of inflation described on this basis is called 'deficit-induced inflation. The reason for its origin is that the government wants to spend more than its income. Thus, there can be two forms of inflation, wage-promoted inflation, and profit-promoted inflation.

Wage-induced inflation is generated as a result of an increase in workers' salaries due to an increase in their work efficiency, while profit-induced inflation is the main reason for the rise in the profits of producers.

Based on the time

There can be two forms of inflation under this classification. First, is wartime inflation, which has its origins during wartime. Second, there is post-war inflation that arose in the period immediately after the war. The most severe inflation in Germany is the best example of war-time and post-war inflation.

released.

(iii) Agriculturists and Landlords: In the event of inflation, the farmer class benefits because its position is indebted and productive. But on the contrary, the landowner suffers because his rent is certain. But this loss is short-term because the land owners, being all-powerful, soon succeed in increasing the levy.

Wage-earners and salaried persons: In this class, we include all those individuals who get their family's livelihood on the basis of daily wages or monthly wages. Hence, this category includes all kinds of salaried employees (generally middle class) and laborers (lower class) engaged in factories, agriculture, and other activities. This entire class faces huge crises in the inflationary period because the wages and salaries of this class do not increase in proportion to the price rise. Due to the non-increase in wages, the purchasing power of this class is greatly reduced. As a result, their family is also not well-nourished.

The middle class, which is similar to the backbone of the present democracy, is what is badly victim of inflation. Inflation starts to flatten the position of this class from the very beginning. After The First World War, the middle-class families of Germany, Austria, Poland, and France were completely devastated by the most severe hyperinflation in these countries. At this time, the prestigious middle-class families of these two were also completely destroyed because due to inflation, the entire savings and appropriation power of these families was reduced to zero.

Consumers: All the members of society are consumers and as a consumer, inflation is harmful to the entire human society. The only reason for this is that their income remains the same or increases slightly, but the prices go up drastically. As a result, he is able to buy fewer goods than before his income. Due to the decrease in the purchasing power of the currency, they have to reduce the amount of their consumption which causes them natural distress. All are familiar with the sufferings of consumers caused by inflation during the Second World War and the post-war period. In India, it still exists.

5. Debtors and Creditors: In the event of inflation, the debtor class gains, but the rich class remains at a loss. Due to inflation, the value of money is reduced, so it pays less purchasing power than before in lieu of the loan. As a result, he benefits from inflation. But the rich get less purchasing power in return for the loan given by him, so he remains at a loss.

(b) Effects on government and taxpayers: Inflation has an impact on the government and taxpayers as well. Due to inflation, the expenditure of the Government is constantly increasing which there is an additional burden on it. The Government needs additional income to meet these expenses. But, it is consistently opposed to the increase in taxation due to the increase in the living expenses of the people and the increase in income. Compelled, the Government has to promote inflation to meet the increased expenditures and it continues to meet these expenses by way of over-issue until the situation becomes worse.

Thus, the Government also suffers from the inflation situation. But on the contrary, taxpayers benefit from this situation. Because they have to pay more money as tax than before, but in terms of purchasing power, this amount is much less than the previous one.

What are the measures to contain inflation?

There are two major reasons for the emergence of inflation. Firstly, the increase in the amount of money or credit in circulation, and secondly, the decrease in the number of goods. So, in order to contain or control inflation, we should either reduce the amount of money or credit in circulation or drastically increase the number of goods or services. The following are the description of these two measures to control inflation:

(A) Reducing the amount of money and credit in circulation

The following measures can be used to reduce the amount of money and credit in circulation:

1. Stop expanding the circulation: In order to reduce the amount of currency, the government of the country should first stop the further expansion and issuance of currency. If the amount of money is not increased in this way, the increase in the prices will also stop. The best way to achieve this objective is to introduce a new currency system in the country and to keep the old trend variable to a smaller extent than the new trend. After the war, Russia followed the same policy to contain inflation.

Mandatory savings scheme: In order to reduce the current amount of circulation, the government should introduce a compulsory saving scheme by passing a law. Once this scheme becomes popular, every person will definitely have to make some savings per month. This amount of savings will be available to him only after a certain period of time. Thus, a certain amount of the current trend from this savings scheme will not be used for consumption. The currency will remain low in circulation. So, the prices will start to come down.

New financial policy: In order to further reduce the amount of money and credit, the government should abandon its old financial policy and adopt a new financial policy. Under this new policy, it should increase the rates of direct and indirect taxes, balance its budget by not making it unnecessarily, and take more credit from the public through attractive measures. Thus, when the work is done, the purchasing power of the people will be reduced and then they will not demand more, as a result, the prices will come down.

New Monetary Policy: Along with the new financial policy, the government should also change its monetary policy. Under this policy, the Government should increase the bank rate. With the increase in the bank rate, individual purchases and personal appropriations will come down because then in the greed of higher interest, the person will deposit his money in the bank by not investing here and there. As a result of the financial policy, there will already be some specific restrictions on the issue of credit to the banks. Therefore, at this time, monetary policy will have a double effect and the amount of money in circulation will decrease.

(b) to increase the number of goods 

If the volume of goods and services in the country is increased along with reducing the volume of circulation, inflation is quickly controlled. The following measures can be used to increase the number of goods in the country when inflation arises:

New Tariff Policy: The Government should change its tariff policy in such a way as to encourage imports and discourage exports. With more imports and lower exports, the number of goods in the country will naturally increase.

Industrial development: Maximum development of industries in the country should be done. To achieve this objective, new industries should be set up, and the production of old industries should be increased. Special importance should be given to the development of cottage industries.

Government production: If necessary, the government should start production on its own in certain areas.

(C) Price Control and Rationing

Apart from reducing the amount of currency and increasing production, some individuals are of the view that price control and rationing should be introduced to control inflation. In fact, inflation cannot be eliminated by this measure; prices can be controlled for some time. Therefore, it is appropriate that both A and B should be implemented simultaneously to eradicate social evil like inflation.

Conclusion

The appropriate facts lead to the conclusion that in the early age of a developing and planned economy, a mild amount of inflation is beneficial because it provides dynamism to production, employment, income, and government development plans, but it is advisable to use inflation as medicine. Only when it starts to be used as food does it arise, then social and economic defects begin to arise. Inflation should be treated as opium, which, when used as a medicine, is beneficial, but when used to it, it destroys the work capacity and body.