Demand-Pull Inflation vs Cost-Push Inflation: Key Differences

What is Demand-Pull Inflation?

What Causes Demand-Pull Inflation?

What is a Recent Example of Demand-Pull Inflation?

How to Control Demand-Pull Inflation?

What is Cost-Push Inflation?

What are the Causes of Cost-Push Inflation?

Why is India Facing Cost-Push Inflation?

Who Benefits from Cost-Push Inflation?

Differences Between Demand-Pull Inflation and Cost-Push Inflation

The key differences between cost-push and demand-pull inflation are discussed below in the following table:

Aspects Cost-Push Inflation Demand-Pull Inflation
Meaning Cost-push inflation occurs in case there is an upsurge in the price of inputs. Consequently, manufacturers produce fewer items, decreasing the supply of items or outputs. Demand-pull inflation is caused when the aggregate demand increases quicker than the aggregate supply in an economy.
Causative Factors An increase in the price of input costs causes cost-push inflation. The monopolistic groups in society, like labour unions and firms, also play a significant role. Demand-pull inflation is caused by monetary and real factors.
Policy Recommendations To cope up with cost-push inflation, the government organises deflationary monetary policy or supply-side policies. To deal with this scenario, governments, alongside public banks, should work together to adopt strict fiscal policies. These policies may include lessening government spending, increasing taxes, etc.
Driven By Cost-push inflation is typically driven by producers. Demand-pull inflation is primarily driven by consumers.
Association with GDP Cost-push inflation is associated with a negative GDP gap since the increasing production costs diminish spending and output. Demand-pull inflation occurs with a positive GDP gap since actual GDP exceeds its potential only if aggregate spending is progressive.
Prevalence Cost-push inflation has not been too prevalent in recent times. Demand-pull inflation takes place in most economies worldwide.

After knowing the difference between demand-pull and cost-push inflation, here is a look at their effects on a nation's economy.

What is Mixed Demand-Pull and Cost-Push Inflation?

What are the Effects of Demand-Pull Inflation?

What are the Effects of Cost-Push Inflation?

FAQs about Demand-Pull Inflation vs Cost-Push Inflation

What is the combination of cost-push and demand-pull inflation?

The combination of cost-push inflation and demand-pull inflation is known as stagnation. In this scenario, the general price level starts increasing owing to some discrepancy in the supply and demand of commodities. This results in the escalation of factor costs, leading to inflation.

What are the best investment instruments during cost-push and demand-pull inflation in an economy?

The most popular investment instruments to shield against inflation include gold, index funds, real estate, etc. In addition, you can even invest your money in precious metals such as silver, platinum, and palladium, as well as in agricultural commodities such as wheat, soybeans, etc.

Which factors are responsible for causing cost-push inflation?


Mentioned below are the three major factors that are responsible for causing cost-push inflation in an economy:

  1. Wage-Push Inflation
  2. Material-Cost-Push Inflation
  3. Profit-Push Inflation

Which factors are responsible for causing demand-pull inflation?


Just like cost-push inflation, three crucial factors are responsible for causing demand-pull inflation in an economy. They are:

  1. Expanding Economy
  2. Increased Government Spending
  3. Overseas Growth

How to control cost-push inflation?

Decreasing taxes on goods, enhanced government action on prices of goods, and better supply-side policies are some of the effective measures to reduce cost-push inflation.

What are the four types of inflation?

Hyperinflation, galloping, walking, and creeping are four basic types of inflation found in an economy. These are categorized based on the inflation rates, the pace of the inflationary process, and the economic stage of a country.

What is meant by the Phillips Curve?

The Phillips curve states that when there is high economic growth and increased consumer spending, there will be greater employment in the economy. The demand for more workers and labour will increase owing to price inflation.

What is Taylor's rule in economics?

Taylor’s rule in economics highlights that when inflation rises above an accepted rate or there is unusual GDP growth, the central bank (RBI in India) should increase the interest rates accordingly.

What is stagflation?

Stagflation is an alarming situation where inflation rates increase, employment level reduces, and economic growth remains stagnant or poor. Monetary policies help to curb stagflation through interest rates and other relevant measures.

What is the Fisher effect in economics?

The Fisher effect shows the relationship between inflation and different interest rates like nominal and real interest rates. It involves an equation where the real interest rate is equal to the nominal interest rate less the inflation rate.

What is the LM curve?

An LM curve describes the relationship between the interest rates and output or activity level in a short period. It is used to strike a balance between interest rates, considering the output level or supply.

What is Keynesian quantity theory?

Keynesian quantity theory strikes a relationship between the volume of money and prices of goods. It also indicates the effect of the quantity of money on the bank's interest rates. It specifies that there is no direct relation between money volume and prices of goods.

What is the impact of demand-pull inflation or cost-push inflation on the economy?

As a result of rising inflation, a country can expect increasing exports as a result of depreciating local currency, rising consumer spending, the real value of money diminishing over time, unemployment, decreasing interest rates, etc.