This document discusses different types of inflation including demand-pull, cost-push, administered price, and sectoral inflation. It provides explanations of cost-push inflation theory, sectoral inflation theory, and structural inflation theory. Cost-push inflation is caused by increases in production costs like wages, profits, or materials that result in lower aggregate supply and higher prices. Sectoral inflation refers to price increases in different industry sectors, while structural inflation arises from unstable export growth inadequate to support the required economic growth rate.

1. Inflation
“ Inflation is when you pay fifteen dollars
for the ten
dollars haircut you used to get for five
dollars when you had hair “
By
Nikul Thaker

2. INRODUCTION
• Inflation in layman’s language is “Rise
in price”.
• Inflation is a continuous increase in the
general price level of goods and
services in an economy over a period of
time.
• Its rise in general price level caused by
imbalance between money and trade
activities.

3. Meaning
• We can define inflation as devaluation of currency
value due to which there is a rise in price of goods.
• Due to this money supply is increased at the same
time money value goes down, due to this more
money is printed and prises rise.
• Inflation is a process of making addition to
currencies not based on commensurate increase in
production of goods
- Federal reserves

4. Types
• The most important type of inflation is called demand-
pull or excess demand
• inflation. It happens when the total demand for goods
and services in an
• economy exceeds the available supply, due to which
the prices rise in a
• market economy. It is the most common type and
sometimes
• the most seriousOther types of inflation occur more
readily in
• conjunction with demand-pull inflation.

5. • Next type of inflation is called cost-push
inflation. The name
• suggests the cause--costs of production rise,
for one reason or another, the reasons may be
Often .a rise in wages in
• excess of any gains in labour productivity is
what raises unit costs of
• production and thus raises prices. This is less
common than demand-pull.

6. • Another type of inflation could be called pricing power
inflation, but is
• often called administered price inflation. It occurs whenever
• businesses in general decide to boost their prices to increase
their profit
• margins. This does not occur normally in recessions but when
the economy
• is booming and sales are strong. It might be called oligopolistic
inflation,
• because it is oligopolies that have the power to set their own
prices and raise
• them when they decide the time is ripe

7. • Last type is called sectoral inflation. The term applies
• whenever any of the above factors hits a basic industry
causing
• inflation there, and since the industry hit is a major
supplier of many other
• industries, as for example steel is, or oil is, that raises
costs of the
• industries using say steel or oil, and forces up prices there
also, so inflation
• becomes more widespread throughout the economy as a
whole although it originated in one basic sector

8. THEORIES OF INFLATION
• COST PUSH INFLATION THEORY
• SECTORIAL INFLATION THEORY
• STRUCTURAL INFLATION THEORY

9. COST PUSH INFLATION THEORY
• In the words of J.C Ranlert, “The basis of cost
push theory of inflation is that organised
groups, both business and labour, establish
higher prices for their products or services
than which would prevail in perfectly
competitive markets.”
• Thus cost-push inflation is caused by an
increase in cost of production that results in a
fall in aggregate supply of goods.

10. Causes of Cost-Push Inflation
• Wage - Push inflation : Cost inflation arising
from trade union,pressure on wage rate.
• Profit - Push inflation : Inflation caused due to
business monopoly power i.e one firm
dominance.
• Material - Push inflation: Increasing raw
materials prices due to raise in fuel cost and
wage rate.

11. SECTORIAL INFLATION THEORY
• It refers to the rise in prices occurring in
different commercial sectors of a country.
With the rise in prices of different raw
materials, the prices of the finished products
in diverse sectors increase simultaneously.

12. STRUCTURAL INFLATION THEORY
• “STRUCTURAL” inflation arise due to unstable
and slower growth rate of export in the
economy which is inadequate to support the
required growth rate of the economy.
• Thus, structural inflation results from supply
inelasticies leading to rise in agricultural prices
and costs which intern leads to inflation.

13. Cost-Push Inflation vs. Demand-Pull
Inflation
• Demand pull inflation is where the demand for an item
has increased to a point where the price is increased, to
reach an new equilibrium on a supply demand diagram.
For example, if there is a toy many children want for
Christmas, sellers may increase the price.
• Cost push inflation is where the price must be increased
because the costs of making the product or service has
increased. For example, if there was a new tax on raw
material A, any products which use this raw material
will have their price increased relative to the tax
increase.