Flations

Since I posted most of my writings related to inflation and subsequent monetary policies, lets have a look at other things than our usual word inflation! Means apart from Inflation, how money FLATIONS are there, that governments/central banks need to take care of them before deciding policies.

We will start with...

Inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

I dont think I need to give more information on this as we already facing the problem and daily reading in papers.


Deflation

A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression.

Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the central banks can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.

Now present US conditions are indicating that it may enter into a Deflation due credit crunch crisis, unemployment (due to bankruptcies of companies, mass layoffs to reduce the cost & etc)

Disinflation

A slowing of the rate at which prices increase. Typically, this occurs during a recession as sales drop and retailers are not able to pass on higher prices to customers.

Disinflation is not to be confused with deflation, where prices actually drop.

Presently I believe, from last 4-5 weeks we Indians are in disflationary mode. WPI numbers may be decreasing from near 13% levels to 10.72%, but prices for which a common man pays may not be decreasing so much. But the pace at which they increased till October is slowdown now. I think they peaked now!

Hyperflation

Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is a situation where the price increases are so out of control that the concept of inflation is meaningless.

Hyperinflation often occurs when there is a large increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked this causes prices to increase, as the currency loses its value.


About HYPERFLATION, I think I posted 2-3 times. So interested people can go through my older posts. But here I would like to mention the example of Zimbabwe which is presently in Hyperflation. And according data released in October 2008 Zimbabwe's inflation or hyperflation was 2.79 Quintillion (10^18) percent.

Reflation

An economic policy whereby a government uses fiscal or monetary stimulus in order to expand a country's output.

Possibilities include reducing tax, changing the money supply, or even adjusting interest rates.


Stagflation

A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.

Stagflation occurs when the economy isn't growing but prices are, which is not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effects.




Source...

Investopedia.com
Google.com