inflation paragraph types

• demand pull inflation is caused by high levels of demand that exceed the current level of goods and services produced. This is illustrated by using a AD/AS graph... When the economy is in an upswing, confidence and incomes are rising, causing aggregate demand to increase from AD1 to AD2, creating a shortage and putting pressure on prices. The general level of prices will rise from PL1 to PL2. This is demand pull inflation. Importantly, output (GDP) also rises from O1 to O2, indicating that demand pull inflation is associated with a growing economy.
• Recovery from Covid caused confidence levels to rise and increased AD due to savings during Covid. This contributed to the high levels of inflation in Australia in 2022, where it peaked at 7.8% in the fourth quarter.
• Cost push inflation is caused by an increase in the cost of producing goods and services, which is passed on to consumers, who then pay more. This can be seen through the use of an AD/AS graph... When production costs rise due to increasing petrol costs, rising wages, and natural disasters, aggregate supply will decrease from AS1 to AS2. Producers can't afford to produce as much output, causing a shortage and passing on higher prices to consumers. The general level of prices will rise from PL1 to PL2. This is cost push inflation.
• Importantly, output (GDP) falls from O1 to O2, indicating that the economy is worse off. Cost-push inflation can be seen as a 'double edged sword' as the economy is slowing (contributing to job losses) and prices are rising simultaneously. During Covid, border closures and supply issues caused higher transport cost, contributing to rising inflation in 2020-2021, which changed from 1.1% in March 2020, to 5.1% in March 2021.