Inflation can be caused by excess demand (demand-pull), rising production costs (cost-push), or a self-reinforcing wage-price spiral (built-in inflation). Each cause requires different policy responses.
The Three Main Causes of Inflation Inflation — the sustained rise in the general price level — does not have a single cause. Economists identify three primary mechanisms through which inflation arises, each with different implications for economic policy. 1. Demand-Pull Inflation Demand-pull inflation occurs when aggregate demand in an economy grows faster than aggregate supply. When consumers, businesses, and governments collectively attempt to buy more goods and services than the economy can p