Difference between Demand Pull and Cost Push Inflation

Inflation is referred to as the situation when the price level of goods and services rise, which leads to decline in the purchasing power in the economy or in other words decreases the buying power of the money.

There are two types of inflation which arise either based on the demand side or price of inputs in the economy. The demand side factors result in formation of demand pull inflation and the supply side factors result in cost push inflation.

Demand pull inflation arises when the aggregate demand becomes more than the aggregate supply in the economy. Cost pull inflation occurs when aggregate demand remains the same but there is a decline in aggregate supply due to external factors that cause rise in price levels.

Let us look at some of the points of difference between demand pull inflation and cost push inflation.

Demand Pull Inflation

Cost Push Inflation

Definition

Inflation that occurs due to increase in aggregate demand is referred to as demand pull inflation

Inflation that results from decline in aggregate supply due to external factors is referred to as cost push inflation.

Impact of aggregate demand

Increased aggregate demand results in demand pull inflation

In cost push inflation the aggregate demand remains the same.

Caused by

Rise in aggregate demand

Rise in price of inputs like raw materials, labour, etc

What it represents

The beginning of price inflation

The idea that inflation is difficult to stop, once it has started

Causative Factors

Monetary factors and real factors

Caused by business groups of society who respond to rise in costs of the product

Prevalence

Demand pull inflation occurs in most economies of the world

Cost push inflation is not that relevant in current times

This article was all about the topic of Difference between Demand Pull and Cost Push Inflation, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

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