Types of inflation

 The puzzle is complicated- inflation is coming from many forms, the Demand pulls inflation and cost pushes inflation which types of inflation significantly affect prices. Consequently, the economic transaction, Business revenue and public disposal income will be affected adversely when accelarating  inflation. 

The supply-demand of money flow are factoring the inflation, if Govt wants to boost economic growth and ensure adequate credit growth thus, they would print more money, purchasing bonds from money market by through more money let put into system, and govt would spend higher expenditure for infrastucture, 

As a result, credit will expand due to lower borrowing cost, the consumers product demand will spike up, and corporations begin to expand their business operation, which causes the businesses thus, can not meet consumer demand which supply side bottlenecks push up all prices. This supply-demand gap is called Demand pull inflation.

When business firms tend to increase their production level in order to meet accelerated consumer demands, they have to face higher raw material and  input costs that increase in price pass along to consumers, which leads to low demands because customers are not willing to pay high price for the same attributes. That results in corporations needing to operate with lower capacity. Eventually revenue and margin will fall.

Demand Pull Inflation

Decreasing the unemployment Rate is good for economics. Massive money flow into the system will reduce the interest rate then businesses will expand their operation and consumers would make purchases - big ticket items such as houses and cars that  Because banking and financial institutions are willing to pay credit to individuals and firms  from their excess cash flow to generate additional  interest income. 

Higher money flow and soaring consumer product demand like this environment business firm tend to fulfill accelerating additional demands in the market. They would be involved in business expansion and hire additional employers. Thus, wages inflation will rise while consumers would believe that prospectus of economic growth that results in encouraging them to buy more products. Eventually, prices go up. In other words, more money chasing fewer goods. Thai price changes are measured on a monthly basis that is indexed separately as consumer price index.   The Economy would overheat that repercussion of rampant inflation. During the period of 2006-2008, for example to Demand pull-inflation. 

The cost Push inflation

The cost push is  usually followed by Demand pull inflation. Lower supply and higher that demand lead to production increase however, they could not get adequate input materials for their increasing level of the production  thus, the input costs and energy will go up therefore they would lose accrued profit margin. 

Companies have to bear input cost hike or impose on customers. As a result, falling sales and shrinking profit margin. of  Which price fluctuation  could immediately affect the overall economy. This type of inflation is more dangerous than Demand pull inflation. In fact, Demand pull supportive of economic growth but cost pushes inflation. The recent Covid pandemic  supply shock is a good example for cost push inflation. 

In the time of high inflation, the central banks would tighten the money flow, they would rise inflation rates, the monetary committee can take under control  Demand pull inflation. But coast push is much more complicated to control. Sometimes it might be sustained at a long period.