Inflation caused by excessive growth of total demand, that is, total demand is greater than total supply. The existing equipment and resources have been fully utilized, and it is impossible to increase the output, resulting in insufficient supply, so the price has risen.

Cost-driven inflation

Also known as supply-oriented inflation, that is, inflation caused by cost or supply. The reasons why the supplier's production cost rises lead to the upward movement of the overall price level are: (1) the wage rises too fast; Increase in profit transfer; The price of imported goods has gone up. Causing the price to rise.

(C) the demand and cost of mixed inflation

In practice, the cause of inflation is not single, and the price level that rises at the same time due to various reasons is inflation driven by mixed supply and demand.

It is assumed that inflation is driven by demand, that is, the increase of transitional demand leads to the rise of the overall price level, which in turn becomes the cause of wage increase, and then forms cost-driven inflation.

(D) Expectation and inflation inertia

In practice, once inflation is formed, it will generally last for a period of time. This phenomenon is called inflation inertia, and one explanation for inflation inertia is that people will make corresponding expectations for inflation.

Expectation means that people make estimates of future economic variables. Expectation is often based on the past inflation experience and the judgment of the future economic situation, to judge and estimate the future inflation trend, thus forming the expectation of inflation.

(V) Transitional investment behavior

The overheated investment and the sharp rise in the prices of raw materials and energy have led to the rising cost of downstream industries, the rising commodity prices of the whole society and the cost-driven inflation. Overheating investment will lead to inflation, which in turn may lead to overheating investment.