There are basically two Types of Inflation.
- Demand Pull Inflation
- Cost Push Inflation
Reasons for Demand Pull inflation:-
Hording of Stock:- Sometime supplier hold the stock with the purpose to increase the price in the market and to earn high profit by selling good at higher price. The Govt may intervene in the situation to improve supply and may also put some administrative measure to counter this illegal activity.
Climate Disaster :- The supply of the product may also be reduced due to the climate disaster like flood etc. The Govt has limited choice to improve the supply within the country. The import may be serve as good option .The govt may also reduce the Custom duty to encourage the imports to meet the demands.
Delay in new arrival :- Sometime agriculture product takes a bit longer to reach in the market. This creates a pressure in the market. The reason may be road blockage . This type of inflation is automatically control by the arrival of new supply.
It is important to note that some time it is not easy to bridge the Gap between demand and supply . for example it is not easy to bridge improve the supply of energy within month. The new energy production takes require long term planing and sometime electricity producing unit takes several years before start of production.
Cost Push Inflation :- This is inflation due to increase in the price of factor of production. The factor of production is raw material , labor, other overheads. Therefore if there is increase in price of such factor it would be ultimately reflected in the prices product.
It is very difficult to control this type of inflation as the organization do business to earn the profit and if the investor is not getting the desired profit they will not do the business.
In simple words if the product cost increase the selling price of product will also be increased to earn profit.
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