What is the Difference Between Demand Pull Inflation and Cost Push Inflation?

06/01/2025 • Matheus Moraes

The main difference between demand-pull inflation and cost-push inflation lies in their causes and impacts on the economy. Here are the key differences:

Demand-pull inflation:

Occurs when the aggregate demand for goods and services exceeds the aggregate supply in the economy.
Caused by an increase in demand due to factors such as expanding economy, increased government spending, or overseas growth.
Results in higher prices because production cannot keep up with the increased demand.

Cost-push inflation:

Occurs when the aggregate supply of goods and services decreases due to an increase in production costs.
Caused by factors such as rising costs of raw materials, labor, or other production inputs.
Results in higher prices as companies pass on the increased production costs to consumers.

In summary, demand-pull inflation is driven by consumer demand, while cost-push inflation is driven by higher production costs. Demand-pull inflation typically occurs when the economy is growing, whereas cost-push inflation can occur due to external factors such as supply disruptions or increases in the cost of production inputs.

Comparative Table: Demand Pull Inflation vs Cost Push Inflation

Here is a table comparing Demand Pull Inflation and Cost Push Inflation:

Feature	Demand Pull Inflation	Cost Push Inflation
Definition	Inflation that occurs due to an increase in aggregate demand	Inflation that results from a decline in aggregate supply due to external factors
Caused by	Increase in aggregate demand, excess demand for goods and services	Increase in production costs, decrease in supply of goods and services
Impact of Aggregate Demand	Increased aggregate demand results in demand-pull inflation	In cost-push inflation, the aggregate demand remains the same
Factors Contributing to Inflation	Increase in money supply, government spending, foreign exchange rates	Increase in wages, raw material prices, production costs
Represents	The beginning of price inflation	The idea that inflation is difficult to stop once it has started
Occurrence	Occurs when there is a surge in consumer spending or investment, leading to a higher demand for goods and services	Occurs when there is an increase in production costs, such as wages or raw material prices, leading to a decrease in the supply of goods and services

Both Demand Pull and Cost Push Inflation can lead to higher prices, but they differ in their underlying causes and effects.