Types of inflation

Commodity cost inflation

As we have seen in the past, rising raw material costs lead to price increases. (The oil crisis brought high purchase prices for oil and thus an increase in energy costs.)

Labor inflation

Depending on the balance of power, it is possible that the trade unions enforce wage and salary demands that are higher than the increase in productivity. The companies, for their part, pass the increased wage costs on to the customers via the prices.

The consequence of the costs being passed on to the prices will as a rule be renewed, higher wage demands by the unions, which are then answered in turn by higher price demands by the employers. Such an alternation of wage and price demands is called a “wage-price spiral” or “price-wage spiral”, depending on who is considered to be the cause of the spiral.

Interest cost inflation

The decrease in the value of money due to inflation often leads to an increase in interest rates. Companies that are dependent on credit suffer particularly from this. The interest costs are passed on to the customer via the prices.

Earnings inflation

Inflation from the demand side generally means increased profits for companies, as the other side usually lags behind with the new demands. Profit inflation is only present if the entrepreneur’s profit also triggers inflation at the same time.
This can be the case if:

  • the price increase is not the result of increased demand, but is made because of additional profit
  • the price increase is disproportionately higher in the event of increased demand or cost increases
  • the price increase due to the increase in fixed costs with decreasing employment (and increasing unemployment) turns out to be such that the companies achieve the same percentage profit as before

State inflation

Stehen dem Staat nicht genügend Steuereinnahmen zur financing seiner Vorhaben zur Verfügung, wird er versuchen, Kredite bei der Notenbank aufzunehmen. Wird nur mehr Einkommen geschaffen, aber keine Erhöhung des Güterangebots erreicht, führt dieses Vorgehen zu einer Inflation.

Examples of such an approach are armaments and wars. In peacetime, both additional investments and increased social benefits (if financed by loans) can contribute to inflationary developments.

Consumer inflation

We speak of consumer inflation when private households are put in a position to significantly increase the demand for goods compared to the supply of goods through social benefits from the state, through borrowing from banks or through wage increases above and beyond productivity growth. Full employment is assumed.

Investment inflation

We also speak of investment inflation when entrepreneurs, based on favorable future expectations, make investments that are far beyond the possibilities of the capital goods industry and thus contribute to price increases on the capital goods market that are transferred to the consumer goods market.

Imported inflation

In imported inflation, inflation is related to foreign countries and foreign trade. We distinguish between two causes:

1. Balance of payments surpluses arise from export surpluses. The influx of funds from abroad is not offset by an increase in the domestic supply of goods. If there is also a higher interest rate than abroad, the higher interest rate attracts external capital and thus increases the balance of payments surpluses. These two events can occur individually or together.

2. This effect can be intensified if there are inflationary tendencies abroad. The domestic producer can then expand its foreign supply at the expense of the domestic supply or want to achieve the same income domestically as abroad through price increases. In addition, it would be possible to expand exports by expanding capacity with full or over-employment. The result is shown here again in an increase in money in the exporting country, caused by the imbalance between export and import.

Open inflation

In the case of open inflation, the currency devaluation process can be seen because prices are rising visibly.

The expectation of rising prices leads to increasing demand among consumers and to reluctance to buy goods among entrepreneurs. Shortage of goods and an increase in the speed of circulation of money lead to a process of constantly increasing monetary devaluation.

Covert inflation

In the case of hidden inflation, only the symptoms of overt inflation are removed by government measures. The price increase is masked by a price freeze that prevents prices from rising.

The shortage of goods is countered by rationing goods and introducing production. The above measures cannot eliminate the excess demand. "Black markets" are formed, on which prices are freely established, contrary to state regulations.

Creeping inflation

Creeping inflation is characterized by constant, small price increases. The extent of the inflation is therefore relatively small. Creeping inflation is a typical phenomenon of our time.

Galloping inflation (hyperinflation)

Galloping inflation (Hyperinflation) ist gegeben, wenn die Geldentwertung schnell und innerhalb kurzer Zeiträume erfolgt.

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