Galloping Inflation

Thursday, May 12, 2022 9:19 PM

Galloping
Inflation

• Galloping inflation, also known as jumping inflation, occurs at a quick rate (dual or triple-digit
annual rates) for a short period of time.
• This type of inflation is harmful to the economy and it mostly affects the middle and lower
income sectors.
• Galloping inflation has the potential to trigger an economic downturn. It can also be
accompanied by substantial economic expansion.
What is Galloping Inflation?
• Galloping inflation is defined by price growth rates that are higher than moderate (creeping)
inflation but lower than hyperinflation.
• In most cases, galloping inflation is defined as a price increase of 10%–100% each year.
Causes of Galloping Inflation
The causes can be split into three categories:
• Monetary Causes (the effect of inefficient monetary policy)

• A substantial growth in the unsecured money supply without a proportionate increase in the
supply of commodities and services can cause Galloping Inflation.
• Structural Causes (changes in the economic system)

• Lower prices for the most important export items or commodities. For example, in a number
of petroleum-based economies, the price of oil fell in 2000, causing skyrocketing inflation.
• External Causes (the influence of foreign states)

• The increase in the value of a foreign currency. The stable development of foreign economies
causes their currencies to strengthen, diminishing the strength of the national currency.
• Stagnant economies may face a budget deficit and, as a result, a significant growth in
external debt, which becomes difficult to service and devalues the local currency.
Consequences of galloping inflation
• Concerns among people and businesses, as they are unable to store money for the future.
Money depreciates so quickly that earnings from businesses and employees can't keep up with
rising costs and prices.
• A desire to save money's real value by hoarding products, precious metals, and real estate in
order to get rid of currency.
• Banks' refusal to grant loans with fixed interest rates as loans become cheaper during galloping
inflation.
• Foreign investors shy away from the country, depriving it of much-needed funds.
• The economy becomes unsteady, and government officials lose their authority.

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Measures To Fight Galloping Inflation
Galloping inflation is becoming increasingly difficult for monetary authorities to regulate, as it
necessitates some tough measures:
• Controlling Money Supply is one way to fight Galloping Inflation. In order to maintain price
stability, the central bank must be highly aggressive in managing the money supply. Constant
wage (and other benefit) indexation and price-control measures must be followed.
• Extreme measures, such as implementing shock treatment by cutting government spending or
changing the currency foundation, are used to terminate such inflation.
• Dollarization, or the adoption of a foreign currency as a national unit of currency, is one way to
combat galloping inflation. This offers a cushion for the depreciating currency, allowing the
economy to restart its money supply from scratch, as good (foreign) money will completely
replace the inflating currency.
• High risks associated with establishing contracts at nominal prices are a defining aspect of
galloping inflation. Price rises need to be specified in contracts, or contracts should be
denominated in a stable foreign currency.
• Good financial practices might aid in surviving the period.

Question: What is the distinction between creeping and galloping inflation?

Mild or moderate inflation that occurs when the price level steadily grows at a low rate over a long
period of time is called Creeping Inflation.
Inflation in double or triple digits, such as 20 percent, 100 percent, or 200 percent a year is called
Galloping inflation.

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