Demand Pull Inflation is caused by the presence of excess money in the system which leads to increase in aggregate demand in the system. It’s a classic case of “Too much Money chasing Too Few Goods”
This kind of inflation can be controlled by monetary measures such as high interest rates and by asking banks to maintain high case reserves. These measures act as breaks on money supply.
Cost Push Inflation on the other hand has been caused by supply side constraints. The high cost of labor or raw materials may force producers to increase the prices of their goods and services. High crude oil and food prices are examples of supply shocks leading to unexpected increases in prices of their goods and services.
This kind of inflation requires a more careful use of monetary and fiscal measures
Built in inflation is a type of inflation that resulted from past events and persists in the present. It thus might be called hangover inflation.
Often linked to the “price/wage spiral”, as it involves workers trying to keep their wages up with prices and then employers passing higher costs on to consumer as higher prices as part of a “vicious circle.”
In this case, inflation encourages inflation to persist, which means that the standard methods of fighting inflation using either monetary policy or fiscal policy to induce a recession are extremely expensive, i.e., meaning increase in unemployment and fall in real GDP. Hence, alternative methods such as wage and price controls may be needed as complementary to recessions in the fight against inflation.
This kind of inflation can be controlled by monetary measures such as high interest rates and by asking banks to maintain high case reserves. These measures act as breaks on money supply.
Cost Push Inflation on the other hand has been caused by supply side constraints. The high cost of labor or raw materials may force producers to increase the prices of their goods and services. High crude oil and food prices are examples of supply shocks leading to unexpected increases in prices of their goods and services.
This kind of inflation requires a more careful use of monetary and fiscal measures
Built in inflation is a type of inflation that resulted from past events and persists in the present. It thus might be called hangover inflation.
Often linked to the “price/wage spiral”, as it involves workers trying to keep their wages up with prices and then employers passing higher costs on to consumer as higher prices as part of a “vicious circle.”
In this case, inflation encourages inflation to persist, which means that the standard methods of fighting inflation using either monetary policy or fiscal policy to induce a recession are extremely expensive, i.e., meaning increase in unemployment and fall in real GDP. Hence, alternative methods such as wage and price controls may be needed as complementary to recessions in the fight against inflation.
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