What is good and bad Inflation and Deflation rate ?

I would like to ask what Infaltion and Deflation rate is considered as good / bad. Is better for a country to have high or low inflation ?
posted on 13.07.2019 at 17:57
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In economic theory, there are more types of inflation:

  • Low inflation - from 0% to 3%
  • Walking inflation - between 3% and 10%
  • Running or galloping inflation - from 10%
  • Hyperinflation - over 50%

Some sources may use different sorting of inflation rates. Usually it is good for a country to have low inflation, what means that price level is rising gently, so inflation is under control. Higher inflation rate may cause difficulties to a country. When inflation rate is too high, it can be even dangerous for an economy. Hyperinflation may be described as out-of-control price level increasing, what may result into collapse of monetary system, because of the continuous fall in the purchasing power of money.

Countries with higher GDP growth may have a walking inflation, but because of GDP growth the inflation is not causing them a serious problems.

For economy and business environment it is better to have inflation rather than deflation. According to many economists, the optimal inflation rate is 2%. In general the inflation benefits borrowers and hurts lenders, because it reduces the value of the money.

Deflation occurs when the price level falls below 0%. Sometimes it is called as negative rate of inflation. The deflation is common during and after an economic crisis. Long-term deflation is often not good for economy. It increases the real value of debts and it can lead into economic stagnation.
posted on 14.07.2019 at 17:38
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