This document provides an overview of different theories of inflation including cost-push inflation, sectorial inflation, and structural inflation. Cost-push inflation occurs when increases in production costs lead to a fall in aggregate supply. Sectorial inflation refers to price rises occurring across different commercial sectors due to increases in raw material prices. Structural inflation arises due to an unstable and slower growth rate of exports, which is inadequate to support the required growth rate of the economy.

1. PROJECT ON
THEORIES OF INFLATION
PREPARED BY:- SHAGUN,SACHIN,DIVYA,
SOUMYA & MEHJABI

2. INFLATION
“Inflation is a state of generally rising prices and
falling value of money”
It is a rise in general level of prices of goods and services in
an economy over a period of time and subsequently, the
purchasing power is falling.
It is an increase in the quantity of money which is growing
faster than real national output is expanding.

3. THEORIES OF INFLATION

4. Cost-Push Inflation Theor y
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 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.

5. Figure showing the cost-push
inflation
Y S
P2 D E2
P1 E1
P S2 E
S1
D
S
O Q1 Q2 Q X

6. Causes of Cost-Push Inflation
Wage - Push inflation→ cost inflation stemming from
trade union pressure on wage rate
Profit - Push inflation→ inflation caused due to
business monopoly power
 Material - Push inflation → Increasing raw materials
prices

7. THEORIES OF INFLATION
SECTORIAL INFLATION
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.
Factors and the fulfilment of certain conditions, are listed below:
 Demand-Pull Inflation:
This kind of inflation takes place when the total demand for goods
and services surpasses the available supply. Hence, the prices of
such commodities increase in a market economy.

8. THEORIES OF
INFLATION(Contd)..
INFLATION
Cost-Push Inflation:
Cost-Push Inflation involves the causes and cost of
production to escalate for some reason or the other, leading
to the forceful rise in the prices of finished goods and
services.
Pricing Power Inflation:
Such inflation occurs when the commercial sector of a
country becomes determinant to increase the prices of their
finished products for enhancing their profit margins.

9. Figure showing sectorial
inflation
(A) (B)
Y D1 S Y S1
D D
P1 E1 D1 S
E P1 E1
P P E
S D D1 S1
S D1 D
O Q Q1 X O Q1 Q X

10. 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.
A uniform rate of growth of money wages throughout the
economy must lead to permanent cost pressures in the
service sector, which is assumed to have the lower
productivity growth.
Thus, structural inflation results from supply inelasticies
leading to rise in agricultural prices and costs.

11. Figure showing structural inflation
Y S
E1
P1
P S1 E
S
D1
O D
Y1 Y

12. THANK
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