Demand Pull Inflation takes place when the total demand for goods and services surpasses that of the total supply. In fact, Demand Pull Inflation occurs when there is exuberant growth in aggregate demand, followed by an inflationary disruption.
Demand Pull Inflation is characterised by an increase in the Gross Domestic Product (GDP) and reduction in the unemployment problem. It is at this phase, that the economy of a country can be said to be moving along the Phillips Curve. Generally, the theory of Demand Pull Inflation is associated with that of Keynesian economics.
Nature of Demand Pull Inflation:
- Ever since its inception, Demand Pull Inflation is monetary in nature. This is because the authorities in power permit the rise in money supply , more than the capacity of the economy to supply goods and services.
- Demand Pull Inflation is born out of the interaction between consumer demand and supply of products. In case the consumer demand concentrates on a rare product, it is natural for the price of such a product to rise. When this happens in the economy as a whole, then this is known as inflation.
- Demand Pull Inflation basically thrives on the escalation in the consumer demand on a continuous basis.