Causes of Inflation There is no one cause that’s universall | UPSC Notes EPFO Labour Law

Causes of Inflation

There is no one cause that’s universally agreed upon, but at least two theories are generally accepted while the debate still goes on:

➨Demand-Pull Inflation – This theory can be summarized as “too much money chasing too few goods”. It is a mismatch between demand and supply , if demand is growing faster than supply, prices will increase. This usually occurs in growing economies as more people gain purchasing power while the supply is not able to catch up to growing demand.When the government of a country print money in excess, prices increase to keep up with the increase in currency, leading to inflation.

➨Cost-Push Inflation – When production costs go up, there is an increase in prices to maintain profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports.

➨Demand pull vs Cost Push Inflation
• If demand pull inflation is present in the economy, the government must bear the cost of excessive spending and monetary authorities are to be blamed for “cheap money policy”
• On the contrary, if cost push is the real cause for inflation then the trade union are to blamed for excessive wage claim, industries for acceding them and business firms for marking- up profits aggressively.