The Form Of Defelation: Three Types Of Inflation

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Inflation is defined as the percentage rate of increase in the general price level. Inflation is a macroeconomic issue faced by all economies including underdeveloped, developing and developed countries. Inflation can be further expressed as firms increasing markup on imported raw materials, labor cost in order to maximize their profits.

Inflation can be either predictable or unpredictable. Predictable inflation occurs when policy makers are able to predict an increase in the price level of goods and services whereas unpredictable inflation is when consumers are surprise with the rise in the price of goods and services. Inflation rate is measured by the percentage change in price level from one year to another year. To calculate inflation rate, we take the last year CPI and deduct it from the current year CPI, then dividing it again with last year CPI however GDP deflator can also be used to calculate the inflations rate.

There are three types of inflation. Demand pull inflation is when total supply of goods and services is insufficient to meet total demand for goods and services by the economy. Cost push inflation is the price increase as a direct result of the increase in the production cost mainly labor cost. The increase in wages and salaries are handed on to consumers in the form of higher prices. Imported inflation occurs when inflationary pressures which develop overseas are transmitted to the domestic economy through the mechanism of international

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