Question

Discuss any three causes of demand-pull inflation.

Answer 1

Causes of demand pull inflation

• Poor performance of farm sector: If agricultural production, especially food grains production is very low, it would lead to the shortage of food grains, leading to inflation.
• Industrial dispute: In countries where trade unions are powerful, they may curtail production level. Trade unions resort to strikes, and if they happen to be unreasonable from the employers’ point of view and prolonged, they force the employers to declare lock-outs. In both cases, industrial production falls and thereby causing a decrease in the supply of goods and services. If the unions succeed in increasing money wages of their members, then the productivity of labour, supply of goods and services change. This also tends to reduce the production and supply of goods.
• Natural calamities: Drought or flood is a factor which adversely affects the supply of agricultural products. They create shortages of food products and raw materials, thereby creating inflationary pressures.
• Artificial scarcities: Artificial scarcities are created by hoarders and speculators who indulge in black marketeering. Thus, they are instrumental in creating a shortage of supply of goods and services to raise their prices.
• Other reasons are capital bottlenecks, entrepreneurial bottlenecks, infrastructural bottlenecks and foreign exchange bottlenecks.