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

What Is Demand-Pull Inflation?

What Is 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.

When it comes to demand-pull inflation, it 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

The cost-push inflation is not too prevalent in recent times.

The 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 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? up-arrow

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? up-arrow

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? up-arrow

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? up-arrow

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