What are the different types of inflation?

There are two types of inflation. The first, cost-push inflation, is where the RPI rises due to increased costs for firms across the macroeconomy. This could be down to a rise in the cost of imported raw materials, and what it leads to is producers passing on the increased costs in the form of higher prices to consumers.
The second is demand-pull inflation, which is where the demand for goods and services in an economy outweighs the productive capacity of the economy. In short, there is too much money chasing too few goods. This can be evaluated in detail using the Keynesian AD-AS diagram, where the degree of spare capacity in the economy dictates the rate of inflation.

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Answered by Tom B. Economics tutor

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