Why is inflation higher in developing countries
There are three forms of inflation: overt inflation, hidden inflation, and dammed inflation.
With open inflation, the rise in prices and thus the deterioration in the value of money can be seen by everyone. In contrast, the price level appears stable with hidden inflation, the inflation is not immediately recognizable. This is the case when prices remain the same, but the quality of the goods deteriorates and the actual monetary value decreases. A black market can be the consequence.
With inflation stagnating, the state keeps the price level artificially stable by imposing fixed and maximum prices. Therefore, the price increase is not noticeable for everyone here as well. If the state measures to stabilize the price situation are overridden, this will suddenly lead to the resolution of the price congestion. The change in prices is then visible.
When it comes to speed, there are four types of inflation in economics:
- Creeping inflation (low price increase)
- Trotting inflation (mean price increase)
- Galloping inflation (very strong price increase) up to
- Hyperinflation (extremely high price increase).
In the case of creeping inflation, the inflation rate is less than five percent. The price level rises almost imperceptibly, but constantly.
In the case of galloping inflation, which is already an extreme case, the price situation increases significantly. This is a threat to the economy. People are aware that they can buy less and less for their money. In extreme cases, this can result in citizens fleeing into tangible assets, using substitute currencies or exchanging their goods.
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