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Inflation BY AYUSSH SANGHI Types of Inflation - Part 4.2
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Inflation can be divided in Types Inflation can be divided in types on the following basis: Cause Based Inflation Rate Based Inflation
Cause Based Inflation Through this lesson we would understand the various types of inflation on the basis of cause: . Demand Pull Inflation Cost Push Inflation . Pricing Power Inflation Sectoral Inflation
Demand Pull Inflation This type of inflation occurs when: Total demand for goods and services in an economy exceeds the supply of the same. When the supply is les, the prices of these goods and services . When the supply is less, the prices of these goods and services would rise, leading to a situation called as demand-pull inflation
Demand Pull Inflation Trivia Demand Pull Inflation affects the market economy adversely during the wartime.
Example Rise in prices of Onions Due to the adverse monsoon the supply of onions decreased but the demand among the masses remained the same. Thus as a result prices increased drastically and reached around Rs.80/Kg Hence increase in prices led to Demand Pull Inflation.
Example Rise in prices of Onions In order to meet the excessive demand the government had imported the onions from Pakistan. - As the supply increases in the market the prices automatically decrease. Thus inflationary impact would reduce. The vicious circle of demand and supply controls the prices.
Cost Push Inflation When there is increase in the cost of production of goods and services due to increase of wages or raw materials cost. There will be a consequent increase in the prices of finished goods and services.
Example High Petrol Prices . Ongoing increase in the prices of petrol is resulting in high inflation rate. Since petroleum is so important to developing economies, a large increase in its price can lead to the increase in the price of most products, raising the rate of inflation