मराठी
CISCEISC (Commerce) Class 11
प्रश्नपत्रिका१७
संकल्पना स्पष्टीकरण आणि व्हिडिओ२०४
अभ्यासक्रम

Inflation

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Topics

Estimated time: 12 minutes
  • Introduction
  • Demand-pull Inflation
  • Cost-push Inflation
  • Key Points: Inflation
CISCE: Class 12

Introduction

Inflation is defined as a situation in which there is a persistent and appreciable increase in the general price level in an economy.​

Three Conditions That Must All Be Met:

Condition What It Means Example
General Rise Prices of many goods & services rise simultaneously — food, housing, clothes, transport, healthcare​ Not just petrol, but also vegetables, rent, and bus fares are going up together
Persistent Rise Price level must rise year after year continuously — not just once Prices rising in Year 1, Year 2, Year 3… not rising in Year 1 and falling in Year 2
Appreciable Rise The rise must be significant — a mild 2–3% per year is considered healthy, not inflationary A rise of 8–10% every year crosses into problematic territory
Simple Analogy: Imagine the price of every item in your local market — vegetables, milk, auto fare, school fees — keeps going up every year for five straight years. That continuous, widespread, significant rise is inflation.
The inflation rate is the percentage increase in the overall price level of all goods and services from one year to the next.
CISCE: Class 12

Demand-Pull Inflation

Inflation that originates from the demand side occurs when aggregate demand increases and exceeds aggregate supply at the existing price level.
Core idea: "Too much money chasing too few goods"

Causes of Demand-Pull Inflation

  • Increase in money supply — government prints more money (deficit financing)​
  • Increase in consumption expenditure — households spend more​
  • Increase in investment expenditure — businesses invest more​
  • Increase in government expenditure — on public projects​
  • Increased foreign demand — export boom raises domestic prices​

Indian Real-Life Example: During Diwali or wedding season, demand for gold, clothes, sweets, and electronics surges dramatically. Sellers raise prices because buyers are willing to pay. This is demand-pull inflation in action.

CISCE: Class 12

Cost-Push Inflation

Inflation that originates from the supply/cost side, when the cost of production rises, forcing producers to raise prices.
Core idea: Rising costs push prices upward from the supply side — even without any increase in demand

Three Sub-Types of Cost-Push Inflation

Sub-Type Cause Explanation
Wage-Push Inflation Rise in wages Powerful trade unions pressure employers for higher wages → firms raise prices to cover increased labour costs
Profit-Push Inflation Rise in profit margins Monopolistic/oligopolistic firms use market power to raise prices beyond what costs require​
Supply Shock (Oil Shock) Sharp rise in oil prices Since the 1970s, oil price spikes have caused economy-wide cost increases → rise in overall prices
Indian Real-Life Example: When petrol and diesel prices rise, transport costs increase. Truck operators charge more to carry vegetables and goods → prices of groceries, milk, and everyday items rise — even though consumer demand didn't change.
CISCE: Class 12

Key Points: Inflation

  • Inflation = persistent + appreciable + general rise in prices — all three must be present.​
  • A 2–3% annual inflation is healthy; it becomes a problem only when excessive.
  • Demand-Pull Inflation = too much demand; too little supply → prices rise.
  • Cost-Push Inflation = rising costs (wages/oil/monopoly power) → producers raise prices.
  • Three sub-types of cost-push: wage-push, profit-push, and supply shock (oil shock).
  • The inflation rate measures the % increase in average prices year over year.

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