Inflation – Characteristics, Divisions, Types, Consequences and effects

Price stability and inflation

Characteristics of price stability

Price stability is a relative stability of prices. This price stability is given in defined currency and defined time.

The main indicator of price stability is an inflation.

Inflation is an economical phenomenon which is characterised by increased prices of products and services and decreased value of money.

Prices include these products and services which a national economy is buying and selling now.

Increased price of one product cans cause an increased price of next product.

Example of this phenomenom

Weak crop of wheat cans cause increased price of bakery products, cakes and bread.

The aim of measuring of inflation

The aim of measuring of inflation is analyse of total depreciation of money.

The next aims of measuring of inflation are

1. Impact for economical development of given state
2. Changed behaviour of consumers because of increased prices of products and services

Rate of inflation is measured by index of consumer`s prices and price`s index of producer.

Characteristics of index consumer`s prices

Index of consumer`s prices is a rate which shows actually amount of prices of products and services in national economy.

Real and nominal product is an overall rate of prices.

Division of inflation

1. Division of inflation according to size

• Slight inflation

This type of inflation is in height from 0 to 9,9 percents. The prices of products and services are increasing acceptable. Output of production chases in national economy. Real and nominal product is increasing.

• Cantered inflation

This type of inflation is in height from 10 to 999 percents. Price of products and services are increasing faster than production. People are keeping necessary amount of money.

• Hyper-inflation

This type of inflation is in height more than 999 percents. It is extreme case in national economy. Money is losing your value. Tempo of increased prices is not corresponding by tempo of production. Present example of hyper-inflation is hyper-inflation in Bolivia and Zimbabwe and historical examples of hyper-inflation are hyper-inflation in Germany after 1^st War and hyper-inflation in Russia after 2^nd War.

1. Division of inflation according to cause

• Demand´s inflation

Demand´s inflation is situation when aggregate demand is higher than aggregate supply. Demand´s totally amount of products and services from side of buyer is higher than supply´s totally amount of products and services from side of seller.

• Supply´s inflation

Supply´s inflation is a situation when aggregate supply is higher than aggregate demand. Supply totally amount of products and services from side of seller is higher than demand´s totally amount of products and services from side of buyer.

1. Division of inflation according to equalisation by inflation

• Proportional inflation

This proportional inflation has got a theoretical base. It is a situation when prices of products and services are same increased as the wages.

• None-proportional inflation

It is a situation when prices of products and services are not same increased as the wages.

1. Division of inflation according to expectation of subjects

• Anticipated inflation

Anticipated inflation is expected inflation in future season. 

• None-anticipated inflation

None-anticipated inflation is difference between expected and really inflation.

1. Division of inflation according to visibility

• Opened inflation

It is a situation when inflation was caused by economical disequilibrium. This inflation is recorded by price index.

• Hidden inflation

It is a situation when inflation was not caused by economical disequilibrium. This inflation is not recorded price index.

Characteristics of deflation

Deflation is economical phenomenon which is characterised by decreasing of price and increasing value of money.

Other types of inflation

 Pure inflation

Administrative measures are its part. This administrative measures solve economical disequilibrium.

Price´s inflation

The main reason of price´s inflation is increased effective aggregate demand and decreased aggregate supply.

Money´ s inflation

Money´s inflation is caused by big emission of money.

Consequences and effect of inflation

1. People are not able to buy
2. Consume of products and services is higher as increasing of wages.

Wages increase slower as prices of products and services. People buy a smaller amount of products and services. People buy an essential things for life. People satisfy basic people´ s needs. 

1. Changed structure of consume

People buy only an essential things for life when is a high inflation.

1. Decreasing of economical rising

Import is higher than export

1. Influence for internal economical equilibrium