There are many types of inflations one is demand pull inflation. Inflation caused by increase in aggregate demand not matched by aggregate supply of goods, resulting in rise of general price level, is called demand pull inflation. Demand pull inflation is to be more simple when the demand for goods and services in the country is more than their supply. The effective demand for goods increases due to many factors such as increase in the money supply, increase in the demand of goods by the government, increase in the income of various factors of production. In short the excessive increase in the money supply causes inflationary conditions. Demand full inflation is generally characterized by shortage of goods and shortage of workers.
The second is cost push inflation. Cost push inflation occurred when the increasing cost of production pushes up the general price level. Cost pull inflation occurs when the economy is below full employment with prices rising even though there is no shortage of goods. Cost push inflation is the result of increase in wage costs unaccompanied by corresponding increase in productivity, rise in import prices of goods, depreciation in the external value of the currency. Profit inflation is in fact categorized under cost push inflation.
The second is cost push inflation. Cost push inflation occurred when the increasing cost of production pushes up the general price level. Cost pull inflation occurs when the economy is below full employment with prices rising even though there is no shortage of goods. Cost push inflation is the result of increase in wage costs unaccompanied by corresponding increase in productivity, rise in import prices of goods, depreciation in the external value of the currency. Profit inflation is in fact categorized under cost push inflation.
