Meaning And Types of Inflation - SS2 Economics Lesson Note

Inflation is the rate at which the general level of prices for goods and services is increasing over time, resulting in a decrease in the purchasing power of money. In other words, when inflation occurs, the value of money decreases and the cost of goods and services goes up. Inflation can have a significant impact on the economy, including affecting interest rates, wages, and the cost of living for individuals and businesses.

Types of Inflation

There are several types of inflation, which includes:

Demand-Pull Inflation: This type of inflation occurs when the demand for goods and services exceeds the supply, leading to an increase in prices.

Cost-Push Inflation: This type of inflation occurs when the cost of production, such as labor or raw materials, increases, causing businesses to raise their prices.

Built-In Inflation: This type of inflation occurs when workers and businesses begin to expect inflation and raise their prices and wages accordingly, leading to a self-caused cycle of price increases.

Hyperinflation: This is a very high rate of inflation, typically over 50% per month, that can quickly devalue a currency and lead to economic instability.