Creeping inflation occurs when consumer prices rise by less than 3% per year. The Federal Reserve generally sets its inflation target at about 2%. This appears to be the range that maximizes its economic benefits. Inflation of less than 3% may be higher than the optimal range, but still relatively mild.
However, creeping inflation does appear to prompt consumers to think prices will keep going up. In response, they sometimes stockpile key goods and assets, which increases demand for those products. Creeping inflation can progress to more problematic forms if supply is unable to keep pace with this rising demand.
Walking inflation is a more serious type of inflation. It occurs when consumer price increases hit an annualized rate of 3% to 10%. At this level, supply struggles to keep up with demand, since consumers buy greater quantities of goods in mass amounts.
This type of inflation creates a strong but generally unhealthy form of economic growth. Walking inflation leaves many people in lower and middle income ranges increasingly unable to afford essential goods and services. Governments usually intervene to prevent walking inflation from accelerating any further.
Of course, inflation can accelerate beyond walking levels to annualized rates of more than 10%. At this point, it becomes known as galloping inflation. Most definitions classify galloping inflation as monthly consumer price increases of more than 10% but less than 50% (when calculated at annualized rates).
When galloping inflation occurs, the purchasing power of money in the economy begins to fall at rapid rates. Incomes cannot keep up with soaring prices. Foreign investment in any country experiencing galloping inflation usually ceases immediately. These factors often combine to create an economic crisis. For this reason, economic policymakers often display a willingness to go to extreme lengths to prevent galloping inflation from happening.