5.3.1. Based on Rate

1. Creeping Inflation: Slow and steady rise in prices (less than 3% per annum)

Creeping inflation is defined as a gradual increase in prices at a low rate, which is typically less than 3% per year. This form of inflation is often considered normal and can indicate a healthy economy where demand is gradually increasing. With creeping inflation, consumers may not feel a significant impact because the price changes are minimal, allowing them to adjust without major disruptions to their purchasing power.

Imagine you go to your favorite coffee shop, and the price of your regular coffee increases from $2.00 to$2.02 over the course of a year. This slight increase mostly goes unnoticed and doesn't disrupt your daily routine. Similar to how many small drops can fill a bucket over time, creeping inflation collects small increases that accumulate in the economy.

2. Walking Inflation: Moderate rise in prices (3%–7%)

Walking inflation represents a moderate rise in prices, which typically falls within the range of 3% to 7% per annum. At this level, inflation begins to catch the attention of consumers, businesses, and policymakers. It indicates a faster rate of price increase, which may start to affect purchasing decisions. People might find that their money doesn't go as far, leading to budget adjustments and, in some cases, concerns about the economy's stability.

Think of walking inflation like a car accelerating. At speeds between 30-50 mph, you can still control the vehicle without much effort. However, as you approach higher speeds, you need to pay closer attention to your surroundings. Similarly, when prices increase moderately, it can lead to heightened awareness and adjustments in spending habits as consumers become cautious.

3. Running Inflation: Rapid increase in prices (above 7%)

Running inflation refers to a situation where there is a rapid increase in prices, typically exceeding 7% per annum. This inflation can create significant economic strain as consumers find it increasingly difficult to keep up with rising costs. It results in decreased purchasing power and may lead to a decline in consumer confidence. In such an environment, businesses may struggle with budgeting and forecasting, leading to potential layoffs and contractions in growth.

Imagine a balloon that is being rapidly inflated. At some point, if too much air is added too quickly, it can burst. In the economy, a similar situation occurs when prices rise too fast—consumers may reach a breaking point where they cannot afford basic necessities, leading to severe economic consequences.

4. Hyperinflation: Extremely high and out-of-control price rise

Hyperinflation is an economic condition characterized by extremely high and typically accelerating inflation, often exceeding 50% per month. This situation causes the value of currency to erode rapidly, leading to a loss of confidence in a currency’s ability to hold value. In cases of hyperinflation, individuals may resort to bartering goods and services or using foreign currencies to conduct transactions. The result is economic chaos and significant hardship for the population.

A well-known example of hyperinflation occurred in