What Causes Inflation? Examples and Explanations

One example of a factor that can cause inflation is excessive money supply growth. When the amount of money in circulation increases at a faster rate than the production of goods and services in an economy, it can lead to a general increase in prices. This is known as 'demand-pull inflation'.

For instance, during the 1970s, the oil crisis led to a significant increase in oil prices. As a result, the cost of production and transportation rose, impacting various industries and increasing the prices of goods and services. This increase in oil prices created a 'cost-push effect', where businesses passed on their increased costs to consumers in the form of higher prices. This led to a period of stagflation, characterized by both high inflation and high unemployment rates.

In addition to excessive money supply growth and cost-push factors, other factors like changes in government policies, supply disruptions, and changes in consumer spending patterns can also contribute to inflation. It's important to note that the causes of inflation can be multifaceted and vary across different periods and economies.