Demand pull and cost push inflation

 Inflation is referred to as the situation when the price level of goods and services rise, which leads to decline in the purchasing power in the economy or in other words decreases the buying power of the money. 

There are two types of inflation which arise either based on the demand side or price of inputs in the economy. The demand side factors result in formation of demand pull inflation and the supply side factors result in cost push inflation. 

Demand pull inflation arises when the aggregate demand becomes more than the aggregate supply in the economy. Cost pull inflation occurs when aggregate demand remains the same but there is a decline in aggregate supply due to external factors that cause rise in price levels. 

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