There are three types of inflation:

1. Hyper-inflation

Hyper-inflation is when the prices increase very sharply, and people start to lose confidence in money and stop acknowledging it as a medium of payment. In this circumstance, the people start to use the barter system, which is they start to exchange goods with goods. Hyper-inflation is also known as a runaway or galloping inflation.

This type of inflation occurs during the wartime circumstances during which many resources are used in the production of war supplies, and few resources are left to produce consumer goods. This leads to a shortage of consumer goods and a sudden increase in price levels.

Hyper-inflation was experienced by Germany in 1923, and till the end of 1923, the prices increased by one million times.

2. Suppressed inflation:

During suppressed inflation, the prices increase due to the excess of aggregated demand above and over the existing supplies of services and goods. The inflation rate can be in two digits, and this type of inflation is frequently related to developing countries. In order to reduce aggregate demand, governments apply contractionary fiscal and monetary policies.

3. Creeping inflation:

In creeping inflation, the prices gradually increase, usually under 3%. Creeping inflation is mostly witnessed in developed countries where aggregate demand and aggregate supply conditions are equitably stable.