Causes of inflation

faster than the rate of growth of national income then

there will be inflation.
If money supply increases in line with inflation then there will be no inflation.

fixed This is because I The rate at which money

circulates is determined by institutional factors e.g. how often workers are paid does not change very much.

the importance of taking into account structural features (typically) when

undertaking economic analysis.

psychological and political-institutional changes, as well as orthodox monetary and

fiscal policies.

do not directly affect prices, and that visible inflation is

the result of pressures in the economy expressing themselves in prices.

what Robert J. Gordon calls the "triangle model":
Demand-pull inflation
Cost-push

inflation
Built-in inflation

beyond the ability of the economy to produce (its potential

output). Hence, any factor that increases aggregate demand can cause inflation. However, in the long run, aggregate demand can be held above productive capacity only by increasing the quantity of money in circulation faster than the real growth rate of the economy. Another (although much less common) cause can be a rapid decline in the demand for money, as happened in Europe during the Black Death, or in the Japanese occupied territories just before the defeat of Japan in 1945.

to increased private and government spending, etc. Demand inflation encourages

economic growth since the excess demand and favourable market conditions will stimulate investment and expansion.

a drop in aggregate supply (potential output). This may be

due to natural disasters, or increased prices of inputs.

leading to increased oil prices, can cause cost-push inflation. Producers

for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices. Another example stems from unexpectedly high Insured Losses, either legitimate (catastrophes) or fraudulent (which might be particularly prevalent in times of recession).

linked to the "price/wage spiral". It involves workers trying to

keep their wages up with prices (above the rate of inflation), and firms passing these higher labor costs on to their customers as higher prices, leading to a 'vicious circle'. Built-in inflation reflects events in the past, and so might be seen as hangover inflation.