Inflation – It is generally understood as an economic process, which denotes a substantial and rapid increase in the level of prices and consequent deterioration in the value of money over a period of time. Thus, inflation represents a sustained rises in prices . Inflation is also a phenomenon, which is characteristic by an overflow of money and credit.

On the basis of the pace of rises in prices, inflation may be divided into following categories

1. Creeping inflation – It is the modest form of inflation, when the price rise over a decade is 1 to 3 percent per annum is called as creeping inflation. It is also called as low or mild inflation.
2. Walking inflation – When the price rise in a decade is 3 to 4 percent per annum, walking inflation is the outcome. Walking inflation presents a warning signal for the occurrence of running inflation.
3. Running inflation – In this stage, the movement of prices accelerates rapidly. Running inflation may record more than 100 percent rise in prices over a decade. Thus, when rise in price by more than 10 percent per year, it is  called as running inflation.
4. Galloping inflation – In this case, the rise in price every moment and there is no limit to the height to which prices may rise. Thus, it is difficult to measure its magnitude.

Types of Inflation – Inflation is a state of economy when prices rise after the state of full employment with no corresponding rise in employment and output. There are following types of Inflation, which are discussed below

1. Demand-Pull Inflation – Heavy government expenditure on development projects of the country increases the volume of money in circulation, which creates demand pull inflation. Demand for goods and services rises rapidly, when there is increase in money supply, which pulls up price level. It is that type of inflation, which rises because aggregate demand for goods exceeds their supply. When demand persistently exceeds, total supply of real goods and services at current prices, prices tends to rise, which results in inflation.
2. Cost-Push Inflation – It results when price rise due to increase in the cost of production of goods. Such a rise may be caused by rising in wages through trade union actions or rise in the cost of any other input entering into production.
3. Stagflation – The combined phenomenon of demand-pull and cost-push inflation is found in several countries. It occurs when economic stagnation in the form of a low rate of growth combines with the rise in general price level.

Causes of Inflation – The general cause of inflation, which are discussed below

1. Increase in government expenditure – Due to increase in government expenditure activities, increases the supply of money leading to higher demand for goods and services and inflationary price rise.
2. Expansion of money supply – When the supply of money increases in an economy without corresponding rise in employment and production inflation will arise.
3. Bank credit – Since the borrowers do not necessarily use bank credit for investment purposes, it may causes price rise in the country.
4. Black money – The existence of black money in the economy also causes price rise in the country.
5. Population growth – Due to increase of population rapidly leading to the increase in demand for goods and services, which may cause price rise in the country.
6. Over-dependence on agriculture – Our country is mainly dependent on agriculture. Bad monsoon and weather conditions affects our agriculture output adversely and resulted increase in prices of agriculture products.
7. Natural calamities – Due to the natural calamities such as floods, drought, cyclones, and many more have adversely affect on the economy in different parts of the country, which may causes price rise in the country.
8. Price rise in petroleum products – If the rise in the prices of petroleum products including petrol and diesel then the rise in price of various products.

In this full discussion, we conclude that the inflation affects both production and distribution of income, which affects the economy of the country.