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Inflation that develops at a rapid pace From Wikipedia, the free encyclopedia
Galloping inflation (also jumping inflation) is one that develops at a rapid pace (dual or triple-digit annual rates), perhaps only for a brief period.[1][2] Such form of inflation is dangerous for the economy as it mostly affects the middle and low-income classes of population.[3][4] Importantly, galloping inflation can precipitate an economic depression.[5] Nevertheless, galloping inflation can still be accompanied by real economic growth.[6]
Galloping inflation is characterized by the rates of price growth that are higher than those of the moderate (creeping) inflation,[7] but lower than those of the hyperinflation.[8] There are no strictly defined parameters of galloping inflation due to the fact that inflationary processes manifest themselves differently in different types of economic systems. As a rule, galloping inflation is recognized as a price increase of 10–100% per year; sometimes there are other limits (10–50% or 20–100%). Paul A. Samuelson limited galloping inflation to 200% per year.[9]
In contrast to the moderate one, galloping inflation is increasingly difficult to manage for monetary authorities as this type of inflation constantly requires an adequate indexation of wages (and other benefits) and measures to contain prices. A characteristic feature of galloping inflation is high risks associated with fixing contracts at nominal prices. Contracts should either stipulate price increases or be nominated in a stable foreign currency. For example, in Russia, during the period of galloping inflation of 1990s, prices for goods and services were often nominated in US dollars.
From the macroeconomics point of view, the causes can be divided into: monetary (the result of an inefficient monetary policy), structural (changes in the economic system), and external (the influence of foreign states).[10]
Galloping inflation causes:[11]
Each of the above may further lead to hyperinflation, sovereign default on state debt, or currency denomination—the issuance of new national monetary units.
Galloping inflation is a more frequent economic phenomenon than hyperinflation and is periodically observed even in the most economically developed countries. In most of the latter, galloping inflation was observed in the post-war years (1945–1952) and in the 1970s due to the increase in prices for oil set by OPEC. Also, galloping inflation is typical for the countries with transition economies.[13][14]
In the 2000s, the number of countries experiencing galloping inflation declined sharply.[citation needed]
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