 Refers to a situation of generally rising prices of

goods and services within an economy. As prices

rise, the purchasing power of consumers decline.

 An increase prices over time leading

to a reduction in the value of money.

 It means that the money won’t be able to buy as

much today compared to previous times.

 If the prices of goods rise the same amount of money

will purchase a lesser quantity of goods.
 Cost-push inflation – is associated with a rise in
prices with a rise in the cost of production such as
higher oil prices.

 Demand-pull inflation – a rise in prices is caused

by rising aggregate demand and firms pushing up
prices due to the shortage of goods.

 Hyperinflation is said to prevail when inflation is

greater than 1000%. Money loses its value at a rapid
pace and nobody wants to use it as a medium of
exchange.
2. Cost-push inflation
An increase in the costs of firms is passed on to consumers.
There will be a shift to the left in the AS.

 Rising wages

Trade unions can bargain for higher wages if united. Rising

wages are a key cause of cost-push inflation because wages
are the most significant cost for many firms. (higher wages
may also contribute to rising demand)

 Import prices
In case of devaluation import prices become more
expensive leading to inflation. Therefore more has to be paid
to buy the same imported goods.
3. Raw material prices
 If the raw material ‘s prices increase causing an impact on
most goods in the economy and this will lead to cost-push
inflation. E.g., in 1974 there was a spike in the price of oil
causing a period of high inflation around the world.

4. Declining productivity

 If firms become less productive and allow costs to rise, this

results in higher prices.

.
5. Higher taxes
 Taxes put up by government such as VAT and
Excise duty will also cause higher prices, and
therefore CPI will increase.