Major Causes of Inflation

A. Demand-Pull Inflation

The prices of certain goods and services rise as their demand gets increases. However, a huge demand for specific good services doesn’t cause an imbalance in the demand and supply. The demand and supply of any good or service can create a huge impact on the prices of that particular good. The prices of goods increase as the demand increases. For example whenever the supply of any good decreases the prices of that specific good begin to rise and in such conditions, people are forced to buy goods at higher prices. There are many other factors that contribute significantly to inflation like lower unemployment, higher cash flow, less repo rate, increased wages, etc.  

B. Cost-Push Inflation

The price of the finished product directly depends upon the cost involved in its production for example if the production cost is less then the price of the product will be less and vice versa. Thus this increases the prices of goods and services due to increases in the production cost can be referred to as the cost-push inflation and also it’s one of the main causes of inflation. The cost-push inflation mainly affects the prices of the goods and services whose price is driven by the raw material cost. Metal is one of the major raw materials for the industries as a result of an increase in the prices of oil and metal the prices of many finished goods increases as metal is the major raw material for numerous industries and oil fulfills the energy demand of almost all industries. 

Along with the raw material prices and production costs, employee wages also have a significant impact on the prices of finished goods. For example, if a company hires a skilled worker to manufacture a particular item, then the company pays him high for his skills and collects the same amount from the customer by charging them high for that specific product.

C. Economic Policies of the government

The economic policies of the government play a significant role in causing or controlling inflation. Inflation is mainly controlled by regulating the flow of money in the market which is done by the government. Thus the economic policies of the government can sometimes lead to inflation and can even help in controlling inflation. The government can regulate the level of inflation by regulating taxation, maintaining the repo rate, and introducing better economic policies that can help both the buyer and the seller.

As per the recent data the inflation rate in India in the first quarter has reached above 7.79%

Inflation has a deep impact on the livelihood of the people living in any nation as the prices of all basic necessities increase with inflation. The prices of certain commodities increase with time but whenever there is a huge increase in the prices of basic commodities within a lesser period of time then it can be said that the nation is under inflation. However, there is not always a single reason for inflation there can be multiple reasons behind it. Also, it always doesn’t come with a loss for everyone sometimes it also results in profits for many people.