What is Deflation, Stagflation, Hyperinflation & Headline Inflation?
What is Deflation?
Deflation is also known as the opposite of inflation, which refers to a condition “where there is a general decline in the prices of goods and services over a time period which results in the hike of currency purchasing power.” Usually, it is observed that the deflation occurs when the general price level declines due to lower inflation rate (i.e. below 0% or less also called negative inflation rate). During deflation, we buy more goods and services with the same amount as we were buying earlier. Deflation generally occurs due to either reduction in the supply of money or credits or due to direct contractions in spending. These spending may be in the form of a reduction in government spending, personal spending or investment spending.
What is Stagflation?
Stagflation generally refers to a condition “where the economic growth becomes stagnant or very slow which results in rise in the price or inflation.” The term Stagflation was first coined in 1965 by British politician Iain Macleod. During his speech to parliament he used the phrase and said: “We now have the worst of both worlds – not just inflation on the one side or stagnation on the other. We have a sort of ‘stagflation’ situation.” Stagflation generally occurs when the prices of goods and services rise very rapidly despite that the economy is not growing. In mid 1970s, world has witnessed stagflation when the oil prices rose dramatically which resulted sharp inflation in developed countries.
What is Hyperinflation?
As the name suggest, Hyperinflation is a situation “where the price of goods and services rises very sharply which causes depreciation of the domestic currency.” Hyperinflation usually occurs when the Gross Domestic Product (GDP) does not support high increase in the money supply which ultimately results in an imbalance in the supply and demand of money.
What is Headline Inflation?
Headline inflation is also known as Top-Line Inflation, which refers to a condition “where inflation figure is not adjusted for seasonality or for the often volatile elements of food & energy prices.” The headline inflation comparisons are generally made on a year-over-year basis which means that a monthly headline figure of 4% inflation equates to a monthly rate if repeated for 12 months would create 4% inflation for the year.