Galloping inflation refers to a condition when the inflation rate is extraordinarily high. It is perhaps 20%, 50%, or even higher on an annual basis. In this period, out of control inflation exacerbates an economic recession. Some countries faced it in 2002, including Turkey (45%), Argentina (25.9%), and Venezuela (22.4%).
Galloping inflation differs from creeping inflation or hyperinflation. The latter occurs when the inflation rate is at a single digit. Severe galloping inflation refers to hyperinflation, in which the inflation rate rises by more than double-digit and sometimes reach 50% in a month.
Impacts of galloping inflation
Low and stable inflation is one of the economic policy goals. In this situation, the prices of goods and services rise moderately over time. People are more willing to save their money. Businesses are also confident to enter into long-term contracts because they do not expect prices to rise quickly in the future.
In contrast, high inflation makes the value of money to fall at a rapid rate. The same amount of money buys fewer goods and services. If people expect higher inflation to continue, they will purchase products and services before prices rise again. Therefore, they will save less.
Out-of-control inflation discourages investments and increases the uncertainty of doing business. Businesses will doubt to engage in long-term contracts because prices change rapidly.