Sectoral Inflation

Sectoral Inflation refers to the rise in prices occurring in different commercial sectors of a country. With the rise in prices of different raw materials, the prices of the finished products in diverse sectors increase simultaneously, leading to the initiation of Sectoral Inflation.

The initiation of Sectoral Inflation requires some factors and the fulfillment of certain conditions, as stated and illustrated below:

Demand-Pull Inflation:

One such important condition is known as the Demand-Pull Inflation or Excess Demand Inflation. In an economy, this kind of inflation takes place when the total demand for goods and services surpasses the available supply. Hence, the prices of such commodities increase in a market economy. In fact, the history of inflation reveals that Demand-Pull Inflation is the most common and serious type of inflation affecting the economic conditions of a nation.

Cost-Push Inflation:

The second condition responsible for the rise of Sectoral Inflation is Cost-Push Inflation. As the name suggests, Cost-Push Inflation involves the the causes and cost of production to escalate for some reason or the other, leading to the forceful rise in the prices of finished goods and services. This is a less common concept of inflation, occurring individually as well as in association with Demand-Pull Inflation.

Pricing Power Inflation:

Pricing Power Inflation or Administered Power Inflation may be cited as the third condition for the rise of Sectoral Inflation. Such inflation occurs when the commercial sector of a country becomes determinant to increase the prices of their finished products for enhancing their profit margins. This kind of inflation is common at a time when the economic conditions of a nation is stable and sound, and not at the time of economic depressions. Pricing Power Inflation is also known as Oligopolistic Inflation, as it is the oligopolies which are authorized to set their own prices and increase them when appropriate time arrives.

Sectoral Inflation:

Finally, it is the Sectoral Inflation which occurs when any of the above 3 factors strikes at the basis of an industry, causing inflation therein. As that industry forms the primary supplier of raw materials to several other industries across a country, the rise in the prices of the raw materials leads to escalation in the prices of the finished products as well. This is how Sectoral Inflation spreads like a wild fire throughout a country’s economy, despite originating in single, fundamental sector.