Economics - Causes of inflation
Causes of inflation
The main causes of inflation are:
* _Increased levels of aggregate demand._ Periods of strong growth in
expenditure have contributed to inflation, as the economy has not been able
to meet the higher demand for goods and services.
* _Higher input prices._ Increased prices of raw materials, semi-finished
goods and capital goods have contributed to inflation.
* _Inflationary expectations._ If inflation is expected to rise, groups
in the economy, such as trade unions and businesses, move to protect
themselves against the loss of purchasing power. This adds to inflationary
* _Imported factors._ If the price of overseas goods increases, due to
factors such as overseas inflation or a depreciation of the Australian
dollar, consumers are faced with higher prices and firms are faced with
higher input prices. This contributes to inflation.
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