Inflation or price increases for goods and services can be classified on various grounds. Based on the rate of price growth, creeping, galloping and hyperinflation are distinguished.
The concept of galloping inflation
Today, there is no definitive definition of galloping inflation. Some experts mean by it an abrupt rise in prices, others - inflation with a growth rate of at least 10-20%. Moreover, there is no single point of view among economists about exactly what rates of price growth should be characterized by galloping inflation. Some people call the numbers 20%, 50%, 100%. Other economists believe they can be as high as 200%.
Galloping inflation is intermediate between moderate and hyperinflation. Moderate inflation is a normal phenomenon for a market economy, the annual price increase in this case is about 3-5%. Unlike moderate inflation, hyperinflation is difficult to control. Hyperinflation occurs in times of crisis and in the process of transformation or radical breakdown of the economic structure. It implies a sharp rise in prices higher than 100%.
Almost all states have gone through galloping inflation. It is often accompanied by crisis phenomena in the economy, or by a radical breakdown of the economic structure. In many countries, it was noted in the post-war years (1945-1952), another wave of its spread occurred in the 70s, when the price of oil rose sharply.
Characteristic features of galloping inflation
Since there are no generally accepted quantitative criteria by which inflation can be defined as galloping, it remains to use the qualitative characteristics of this phenomenon.
The peculiarity of galloping inflation is that it increases the risks when concluding long-term contracts, because the currency is depreciating. Therefore, during this period, transactions are concluded in a more stable currency, or potential price increases are incorporated in them. For example, with the galloping inflation in Russia in the 90s, prices for goods and services were indicated in dollars.
Another characteristic of galloping inflation is that inflationary expectations play an important role in its spread. At the same time, the increase in prices is accompanied by an increase in costs, which slows down economic growth due to the increase in costs.
With galloping inflation, the population strives to preserve their own funds and aspires to convert them into reliable investment methods as soon as possible. For example, in real estate or, if inflation is accompanied by devaluation, in currency.
But the volume of deposits in the national currency is falling in the face of galloping inflation, despite the extremely high interest rates. At the same time, banks refuse to issue loans at a fixed interest rate, therefore the lending market is in a state of stagnation, because borrowers prefer not to use such loans.
Can inflation be considered galloping in Russia? The answer to this question will depend on which gradation to adhere to. If we take the rate of price growth as a basis, then in 2005 inflation was already noted at rates above 10%. It is likely that in 2014 it will also be at a fairly high level. But deposits remained stable, loans were issued at a fixed rate, therefore, according to formal indicators, inflation cannot yet be called galloping.
