Factors causing Inflation

  • Demand Side inflation is caused by high demand and low production or supply of multiple commodities create a demand-supply gap, which leads to a hike in prices due to increase in consumption; Also, Increase in exports which undervalues rupee; Also, the excess circulation of money leads to inflation as money loses its purchasing power With people having more money, they also tend to spend more, which causes increased demand.
  • Cost Pull inflation is caused by shortage of factors of production like labour, land, capital etc. and also due to artificial scarcity created due to hoarding. For example, Brent crude prices crossed $65 per barrel in May 2021, more than double of what it was a year ago. Price of vegetable oils, a major import item, shot up 57% to reach a decadal high in April 2021. Metals prices are near the highest in 10 years and international freight costs are escalating.