Explanation

Demand-pull inflation: too much money chasing too few goods. Excess demand pulls prices up. Often caused by increased money supply, government spending, or consumer confidence.

Cost-push inflation: rising production costs push prices up. Causes include higher wages, raw material costs, or import prices. Oil price shocks historically caused cost-push inflation.

Inflation erodes purchasing power – the same money buys less. Moderate inflation (2-3%) is normal; high inflation destabilizes economies. Central banks use monetary policy to control inflation.