Causes of Inflation: Cost-Push & Demand-Pull
There are three main causes of inflation. They are cost-push, demand-pull, and the velocity by which money circulates in the economy.
Inflation is where prices in the economy as a whole start to increase. This is typically measured using the Consumer Price Index (CPI), which takes a basket of commonly purchased goods and tracks its price movements.
There are three main causes of inflation. They are cost-push, demand-pull, and the velocity by which money circulates in the economy.
Some of the common effects of inflation include; loss in purchasing power, higher asset prices, rising inequality, and impacts on cost of borrowing.
So now we have looked at what money essentially represents, let us look at how inflation is measured. Inflation is usually measured through the CPI, which is based upon a basket of goods.
Inflation is created through excessive money creation. That is to say, money supply is in excess of economic output. Let’s say GDP grows at 2 percent. If the money supply increases by 3 percent, we could expect inflation.