Inflation can be classified by its cause into two main types: demand-pull inflation and cost-push inflation.
Cost-push inflation occurs when the general price level rises because of an increase in the cost of production. When it becomes more expensive for firms to produce goods and services - due to rising wages, higher raw material prices, increased energy costs, or higher taxes on producers - firms pass these increased costs on to consumers in the form of higher prices. The supply curve shifts to the left, meaning less output is supplied at every price level, and the overall price level rises.
A rise in demand for goods describes demand-pull inflation, not cost-push inflation. A decrease in the cost of production or a decrease in transportation cost would reduce production expenses and, if anything, lower prices rather than cause inflation.
Common triggers of cost-push inflation include oil price shocks, currency depreciation (which raises the cost of imported inputs), and wage increases that outpace productivity growth.
