Cost Push Vs Demand Pull

Like machlup johnson regards the issue of demand pull versus cost push as largely a spurious one. If prices increase first it is demand pull inflation and if wages increase follow it is cost push inflation.

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Demand pull inflation is factor 4 inflation increased demand for goods which can have many causes.

Cost push vs demand pull. The key difference between demand pull inflation and cost push inflation is that while demand pull inflation occurs when the demand in an economy rises to outpace the supply cost push inflation takes place when the cost of production increases in terms of the rise in prices of raw materials labor and other inputs. Cost push inflation and demand pull inflation can both be explained using our four inflation factors. Demand pull inflation is the increase in aggregate demand.

Demand side factors result in demand pull inflation while supply side factors lead to cost push inflation. Cost push inflation is the decrease in the aggregate supply of goods and services stemming from an increase in the cost of production. Some economists argue that short term cost push inflation often leads to long term high inflation down the line triggered by wage increases that come in response to the initial bout of cost push inflation.

It is also suggested that identification of demand pull or cost push inflation can be made with reference to timing. The demand pull inflation is when the aggregate demand is more than the aggregate supply in an economy whereas cost push inflation is when the aggregate demand is same and the fall in aggregate supply due to external factors will result in increased price level. Cost push inflation is inflation caused by rising prices of inputs that cause factor 2 decreased supply of goods inflation.

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