Hi friends, in today’s article we are going to know about the difference between demand pull and cost push inflation. So let’s discuss in details.
Distinguish between Demand pull and Cost push inflation
Inflation is defined as the rate (%) at which the general price level of goods and services is rising, causing purchasing power of money to fall. When there is a decrease in the aggregate supply of goods and services due to an increase in the cost of production, we have cost push inflation.
Cost push inflation basically means that prices have been “pushed up” by increases in costs of factors of production when companies are already running at full production capacity. Demand pull inflation occurs when there is an increase in aggregate demand, categorized by the four sections (households, businesses, governments and foreign buyers).
The difference between cost push inflation and demand-pull inflation are given below –
(i) Demand-pull inflation is the type of inflation in which aggregate demand exceeds the aggregate supply. On the other hand, Cost-push inflation is that type of inflation in which the supply of the goods and services gets decreased, and the price gets increased due to the rise in the prices of the factors of production.
(ii) The demand-pull inflation tries to explain the phenomena that how does the inflation starts. While the cost pull inflation deals with the idea of the difficulties faced while eliminating the inflation when it once starts.
(iii) The demand-pull inflation is caused due to the increase in the money supply. But the cost push inflation is caused due to the emergence of the monopolistic groups in the market.
(iv) To eliminate demand pull inflation revisions the fiscal and monetary policies are to be made. But the income policy and the policy on administrative control on price should be reviewed to control cost push inflation.
Therefore, we can say that the main reason for causing inflation in the economy is either by demand pull or cost push factors.
So friends, this was the difference between cost push and demand pull inflation. Hope you get the full details about it and hope you like this article.
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