Galloping inflation

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Galloping inflation- The process of steadily rising prices and costs in the economy is known as inflation. As seen by the amount of money and the number of items that can be purchased, inflation reduces the purchasing power of money. When indicators rise by 30–40% annually and inflation rates are growing quickly, this is referred to as galloping inflation or jumping inflation (Urban, Urbanek, 2015), however Paul A. Samuelson stated that the inflation can be perceived as galloping inflation even up to 200% per year, then the hyperinflation starts.

Overview

Three primary reasons of inflation are identified by economists:

• Cost theory
• Demand theory
• Monetary theory

According to the cost theory, the rise in production costs that results from wage increases without a corresponding rise in employee productivity is what causes inflation. This particular sort of inflation is also brought on by rising monopolistic firm profits, higher taxes, and rising import prices. On the other hand, the demand theory postulates that inflation results from a rising in the demand for products and services on a global scale and happens when all the available production resources have been utilized. The monetary theory holds that the rise in an economy's money supply above the pace of growth in real income is what causes inflation. (Urban, Urbanek, 2015)

Consequences of galloping inflation

Galloping inflation, while getting out of control of the government in a given country, can cause substantial changes in the relationship between prices and products. This has negative impact on functioning of the market structure.

There are several outcomes of galloping inflation (Zawiślińska, 2014) :

• decline in the purchasing power of money
• an escape from money
• the appearance of the illusion of money
• a decline in real income of people with a fixed income and savings
• a necessity of maintaining high interest rates
• increase in public spending,
• an increase in the cost of financing public debt.

Examples of galloping inflation in history

In the year 1994 some European countries fought with galloping inflation, those were (Ghosh, 1997):

• Estonia (41.6%)
• Lativa (26.2%)
• Lithuania (45%)
• Moldova (116%)
• Russia (202.7%)

References

D. Urban, P. Urbanek (2015) Elementy makro- i mikroekonomii p.16

R. Ghosh (1997) Inflation in Transition Economies: How Much? and Why?, a Working Paper of the International Monetary Fund, p. 5-7

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