Inflation

Inflation
Definition
Inflation is a persistent rise in general price level.
Deflation represents persistently falling prices.
 Types of Inflation
• Demand-Pull Inflation
• Cost-Push Inflation
 Demand-Pull Inflation
When aggregate demand for all purposes –
consumption, investment, and government
expenditure – exceeds the supply of goods at
current prices, there is a rise in prices.
 Cost-Push Inflation
• Wage-push inflation
• Profit-push inflation
• Increase in prices of raw materials.
 Wage-push inflation
When trade unions push for higher wages which
are not justifiable either on the grounds of prior
rise in productivity or of cost of living they
produce a cost-push effect.
 Profit-push inflation
Increase in the profit margin by the firms
working under monopolistic or oligopolistic
conditions and as a result charging higher prices
from the consumers.
 Increase in prices of raw materials
Rise in prices of raw materials, especially energy
inputs, result in inflation.