Demand inflation

Also known as: Demand pull inflation

The demand for a certain good or a special service is unexpectedly very high and causes a price increase. In such a case, it can be a question of what is known as demand inflation.

Definition / explanation

Demand inflation is also known as “demand pullover inflation”. This is a special variant of inflation. This is defined by an increased economic demand for certain goods and a resulting price increase.

If the demand exceeds the supply of the required goods and the companies cannot satisfy the demand even by expanding production, this usually leads to a price increase.

Demand inflation

Types and causes

Grundsätzlich kann jede wirtschaftliche Nachfrage einen Preisanstieg verursachen. Dabei werden folgende Types of inflation unterschieden:

Consumption - The supply of goods remains constant, but the demand increases disproportionately.

Investment inflation - There is a very high demand for a particular good. Companies are responding and investing to increase their capacities. This increases production costs, which in turn leads to an increase in the price level.

Government demand inflation - This form of inflation involves increased economic demand and increased government spending on certain goods and services.

Imported demand inflation - Here the cause of the inflation lies in consistently high export surpluses or in the economic dependence on stainless steel suppliers and the resulting fluctuations in the raw material market.

Measures against demand inflation

Demand inflation can be most effectively combated by reducing demand. This can be done through contractive measures. This is understood to mean measures that reduce the existing money and borrowers in an economy. The following contact measures are possible:

  • restricted lending
  • Reduction in government demand
  • Tax increase

Summary

  • arises when the demand for certain goods and services cannot be satisfied even if capacities are increased
  • four types of demand inflation
  • Measures can be taken to effectively combat demand inflation
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