ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Creeping inflation is a type of inflation in which the price level persistently rises over a period of time at a mild rate. During creeping inflation, the annual price rise varies between 2% to 3%. Creeping inflation is good for the economy as it creates demand.

Detailed explanation-2: -Erodes Purchasing Power An overall rise in prices over time reduces the purchasing power of consumers, since a fixed amount of money will afford progressively less consumption. Consumers lose purchasing power whether inflation is running at 2% or at 4%; they just lose it twice as fast at the higher rate.

Detailed explanation-3: -When the rise in prices is 3% or less, then it is known as creeping inflation.

Detailed explanation-4: -1] Creeping Inflation If the prices increase by 3% or less annually, then such inflation is creeping inflation. Such inflation is not harmful to the economy. In fact, as per the Federal Reserve, a 2% inflation rate is desirable. It is necessary for the economic growth of a country.

Detailed explanation-5: -While high inflation is generally considered harmful, some economists believe that a small amount of inflation can help drive economic growth. The opposite of inflation is deflation, a situation where prices tend to decline. The Federal Reserve targets a 2% inflation rate, based on the Consumer Price Index (CPI).