What are the Various Class of Inflation?

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Inflation may be classified on the basis of factors inducing or causing rise in prices, such as, (a) wage-in­duced, (b) profit-induced, (c) scarcity-induced, (d) deficit-induced, (e) currency-induced, () credit- induced, and (g) foreign trade-induced inflation.

1. Wage-Induced Inflation:

When inflation rises due to a rise in wages, it is called wage-induced inflation. In modern times, trade unions are able to secure higher wages for workers unaccompanied by a simultaneous increase in labour productivity. This increases the cost of production, and, in turn, the price level.

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2. Profit-Induced Inflation:

If the producers, due to their monopoly position, tend to mark-up their profit margin, it will lead to profit-induced inflation. Higher profits raise the cost of production which, in turn, pushes up the prices.

3. Scarcity-Induced Inflation:

When the supply of goods does not increase on account of natural calamities, the prices tend to rise. This may be called scarcity-induced inflation.

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4. Deficit-Induced Inflation:

When a government covers the deficit in its budget through creating new money (a method known as deficit financing), the purchasing power of the community increases without a simultaneous increase in production.

This leads to a rise in the price level which is referred to as deficit-in­duced inflation. Deficit-induced inflation is more common in less developed countries, where, due to lack of adequate resources, the government resorts to deficit financing to finance its development plans.

5. Currency-Induced Inflation:

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When the supply of money exceeds the available output of goods and services, it leads to an inflationary increase in prices. This is a case of currency- induced inflation.

6. Credit-Induced Inflation:

When prices increase on account of an expansion of credit without increasing the quantity of money it is known as credit-induced inflation.

7. Foreign Trade-Induced Inflation,

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(a) When a country experiences a sudden rise in the demand for it’s exportable against the inelastic supply of exportable in the domestic market, this increases the demand and price level at home,

(b) Trade gains and sudden inflow of exchange remittances increase the demand and prices in the domestic market. Both these factors lead to foreign trade-induced inflation.

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