Demand-Side Factors: Strong consumer demand, increased government spending, or robust exports can lead to demand-pull inflation as the aggregate demand outpaces supply, causing prices to rise.
Supply-Side Factors: Cost-push inflation occurs when production costs rise, such as higher wages or increased raw material prices, forcing businesses to raise their prices to maintain profitability.Monetary Policy: Loose monetary policies, like low-interest rates or quantitative easing, can boost borrowing and spending, potentially fueling inflation if not balanced with economic growth.External Shocks: Disruptions in global supply chains, geopolitical events, or fluctuations in commodity prices can impact production costs and trigger inflationary pressures.Source:-investpedia
Moreover, government fiscal policies and monetary measures play a vital role in shaping inflation dynamics. Extensive fiscal stimulus programs and accommodative monetary policies aimed at bolstering economies during the pandemic have injected significant liquidity into the system. While these measures have supported recovery, they have also raised concerns about potential overheating and inflationary pressures.Source:-drishti ias
The impact of rising prices on the economy can be multifaceted. For businesses, increased costs can squeeze profit margins, leading to difficult decisions regarding pricing, wage adjustments, and investment plans. Consumers may experience a decline in purchasing power as prices rise, affecting their ability to afford essential goods and services. Inflation can erode the value of savings and fixed-income investments, impacting retirees and individuals with fixed incomes.
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