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Demand-pull inflation

Demand –pull inflation arises when more money chases relatively less quantity of goods and services, the excess of demand relative to supply pushes up the prices of goods and services. In other words, when the price rises because the demand for goods and services are more than their supply, it is known as demand-pull inflation. According to prof. Coulbourn “It is a situation, where too much money, chasing too few goods”.

Cost-push inflation

It refers to a situation where there is a persistent rise in prices because of growing factor costs. Inflation once set in motion due to cost push in one industry or sector, spreads throughout the economy.



If the price of iron goes up, the prices of vehicles, machines, etc. will also increase as iron is one of the inputs. This, in turn, will raise the cost of the manufactured goods. The cost of agricultural products may also rise due to high prices of factors.



Note: Cost-push inflation is more difficult to control than demand-pull inflation as cost-push inflation is not under direct control. Generally, the demand-pull inflation precedes cost-push inflation. When the former sets in, there is an increasing demand for factors of production. The prices of these factors will also raise leading to a rise in the general price levels too.


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