Theories of Inflation || Demand Pull Inflation, Cost Push Inflation, Structure Inflation || |HINDI|

Theories of Inflation: Demand-pull inflation theory of Keynes, a policy that causes a decrease in each component of total demand is effective in the reduction of pressure-demand and inflation. One of the reductions in government expenditure is a tax increase and to control the volume of money alone or together, can be effective in reducing effective demand and inflation control. The basic cause of Cost-Push inflation is the rise in money wages more rapidly than the productivity of labour. The labour unions press employers to grant wage increases considerably, thereby raising the cost of production of commodities. Employers, in turn, raise the prices of their products. Higher wages enable workers to buy as much as before, in spite of higher prices. On the other hand, the increase in prices induces unions to demand still higher wages. In this way, the wage-cost spiral countries, thereby, leading to cost-push or wage-push inflation. Cost-push inflation may be further aggravated by an upward adjustment of wages to compensate for a rise in the cost of living. Thus wage-push inflation in a few sectors of the economy may soon lead to an inflationary rise in prices in the entire economy. Further, an increase in the price of imported raw materials may lead to cost-push inflation. Another cause of Cost-Push inflation is profit-push inflation. Oligopolist and monopolist firms raise the price of their products to offset the rise in labour and the cost of production to earn higher profits.