Causes of Inflation

• Demand Pull

  Inflation caused by excessive AD in the economy

  Producers raise prices and increase their profits
• Cost-Push

  Increased costs of production the economy

  Can cause stagflation- when economy stagnates as price level rises
• Cause of Demand Pull inflation

  lower interest rates

  lower income tax

  rapid income growth

  higher consumer confidence

  positive wealth effects

  easy credit

  depreciation of currency
• Cause of Cost Push inflation

  Rapid wage rises/labour costs

  skill shortages

  increasing input costs

  higher commodity prices

  food price inflation

  indirect tax rises

  depreciation of currency (import inflation)
• Growth of the money-supply

  excessive growth of the money supply

  firms and consumers spend excess money raising AD