What is Creeping Inflation: Examples, Causes & Rate

The following 8 factors can give rise to creeping inflation in an economy:

• Gradual increase in the prices of everyday items such as food, clothing, and household goods.
• Increase in the cost of housing over time, including rent, utilities, and mortgage payments.
• Slow rise in the cost of medical services and healthcare.
• Increase in the cost of education, including tuition fees, textbooks, and other academic expenses.
• Slow rise in the cost of transportation, including fuel, car maintenance, and public transit fares.
• Gradual increase in the cost of leisure activities such as dining out, entertainment, and travel.
• Increase in the cost of consumer goods such as electronics, appliances, and furniture.
• Slow rise in the cost of financial services such as banking fees and insurance premiums.

These factors do not have to be mutually exclusive – they can interact and reinforce one another, resulting in increased inflation.

Creeping inflation is a widespread phenomenon, and here are 3 examples of creeping inflation:

• The 1970s and ‘80s were characterised by way higher rates of creeping inflation, which were caused by the supply-side mishaps such as the oil price increase of the 1970s and the unpolished monetary policies of the 1960s.
• The past 2 decades have experienced creeping inflation rates of about 2% in both the United States and Great Britain, with the only anomaly being the period leading to the economic crisis of 2008.
• In more recent times, the global pandemic’s aftermath during the period of 2020 to 2022 has led to inflationary pressures due to overly loose fiscal and monetary policies, which pose a significant financial threat in the foreseeable future.

Inflation also referred to as overall inflation, is measured by the CPI. It includes both creeping inflation and any sudden spikes in prices that may occur. Meaning overall inflation can be higher than creeping inflation upon sudden price spikes.

The following factors can cause overall inflation:

• Monetary Inflation: It is when an economy’s money supply grows faster than the pace of economic growth, resulting in a reduction in the buying power of money.
• Cost-push Inflation: This occurs when the cost of producing products and services rises, resulting in increased consumer prices.
• Demand-pull Inflation: It is when an economy’s total level of demand for goods and services exceeds the available supply, causing prices to rise.

Inflation, whether it is creeping or overall, can have adverse effects on the economy. Here is which one is more dangerous out of these two types:

• Creeping inflation erodes the purchasing power of consumers over time.
• Creeping inflation makes it more challenging to afford goods and services.
• Overall inflation can often be more widespread and disruptive.
• Overall inflation leads to economic instability if it spikes suddenly.

Thus, overall inflation is supposedly more dangerous for the economy, as it can lead to sudden changes in prices that can be difficult for businesses and consumers to adapt to.

Ergo, sudden changes in creeping inflation may require different policy responses from both central banks and governments to stabilise the economy.