Different factors contribute to the rise in price, which ultimately causes inflation. Demand-pull inflation occurs when there is an increased demand for products and services. Inflation may result due to variety of causes acting singly or in combination. Various economic theories have been proposed by different economic school of thoughts and they have explained the causes of inflation in different ways. 11) Price Rise within International Markets.   They believe that the economy functions at full employment. The inflation rate in the U.S. climbed as high as 12% during this time. (2) Changes in the System of Transactions: Inflation leads to changes in transactions pattern of producers. So, any rise in money supply leads to a proportional rise in … Former is called demand-pull inflation (DPI), and the latter is called cost-push infla­tion (CPI).   Aspects of this were driven by demand-pull inflation, but the '70s also saw the prices of food and energy increase, which caused a rapid increase in cost-push inflation. This results in decreased money with the people and causes inflation. However, we can classify these factors broadly in three categories as below: Demand-pull inflation. According to the neo-classical economists, inflation is caused due to the increase in the supply of money. Causes of Inflation. And the existing production facility can not cope up with this increased demand. As these are used in almost all manufacturing, any increase in price can directly impact on a firm’s cost. One notable example is the price of oil and gas. In case there are a rise in the price of goods overseas, the import cost increases. Former leads to a rightward shift of the aggregate demand curve while the latter causes aggregate supply curve to shift left­ward. Many products within an economy are made from commodities that are imported from abroad. Some terms are used to show some specific causes. Economists have explained the causes of inflation in many ways. They hold a smaller stock of real money holdings against unexpected contingencies than before. Causes of Inflation: Inflation is mainly caused by excess demand/ or decline in aggregate supply or output. Inflation causes misallocation of resources when producers divert resources from the production of essential to non-essential goods from which they expect higher profits. We overview the causes of inflation and assess its consequences. Inflation can cause the price of raw materials to go up. One reason for a price increase may be due to poor exploration results, or a reduction in supply to the market.

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