Types of Inflation

Inflation types are categorized based on the speed of price increases into low inflation, rapid inflation, and hyperinflation; and according to the underlying economic dynamics into demand-pull inflation, cost-push inflation, price inflation, and expectation-driven inflation. These distinctions enable a clearer understanding of both the causes of inflation and its potential consequences.

Types of Inflation According to Rate of Increase

Inflation is classified into three main categories based on its rate of increase.

Low Inflation (Creeping Inflation)

Low inflation is a type of inflation in which annual price increases remain below 10 percent and the general level of prices rises at a relatively slow and predictable pace. In economies experiencing low inflation, confidence in the currency remains high. Financial instruments such as deposits and government bonds continue to serve as attractive investment options. Low inflation is commonly observed in developed countries.

Rapid Inflation (Galloping Inflation)

Rapid inflation refers to annual inflation rates ranging between 10 percent and 1000 percent. At this level, inflation can threaten economic stability. In countries experiencing rapid inflation, individuals tend to shift toward alternative investment assets such as foreign currency, real estate, and gold, due to the belief that money will lose its value. Contracts are typically short-term and often indexed to foreign currency or a price index.

Hyperinflation (Hyperinflation)

Hyperinflation is a type of inflation in which rates exceed 1000 percent annually and usually results from uncontrolled monetary expansion. A classic historical example is the hyperinflation experienced in Germany between 1922 and 1924. The most destructive consequence of hyperinflation is the worsening of income inequality and the rapid impoverishment of the middle class.

Types of Inflation According to Causes

The main types of inflation, classified according to their economic origins, are demand-pull inflation, cost-push inflation, price inflation, and expectation-driven inflation.

Demand-Pull Inflation

This type of inflation occurs when aggregate demand exceeds aggregate supply. Increases in components of aggregate demand—such as private consumption and investment spending, government expenditures, and net exports—generate a level of demand that surpasses production capacity, leading to sustained increases in the general price level. If the economy is near full employment, increases in demand directly translate into price increases. Demand-pull inflation is typically associated with an expansion in the money supply and expansionary fiscal policies.

Cost-Push Inflation

This type of inflation arises when increases in the costs of production inputs—such as labor, raw materials, and energy—are passed on to consumers in the form of higher prices. Producers facing cost pressures raise their selling prices to maintain profit margins. External shocks, such as sudden increases in oil prices or currency depreciation, can trigger this process. In the case of Türkiye, fluctuations in exchange rates have been observed to fuel cost-push inflation by increasing the prices of imported inputs.

Price Inflation

This results from artificial price increases caused by government-imposed price controls, such as price floors or ceilings. This type of inflation typically emerges when state intervention disrupts market equilibrium. For example, the implementation of a price floor may increase producer supply beyond market equilibrium levels, leading to higher prices.

Expectation-Driven Inflation

Expectations among economic agents regarding future price increases influence current pricing behavior. In countries that have experienced high inflation in the past, economic units tend to project past inflation rates into the future. This creates a self-reinforcing cycle in which price increases fuel further price increases.