Demand-Pull Inflation vs Stagflation

Demand-pull inflation is caused by excess demand.

Demand-pull inflation occurs when aggregate demand exceeds the available supply of goods and services, causing prices to rise. This type of inflation is often caused by an increase in consumer spending, investment, or government expenditure. As demand increases, businesses respond by raising their prices, leading to inflation. Demand-pull inflation can be controlled by reducing aggregate demand through monetary or fiscal policy.

Stagflation is the simultaneous combination of stagnant growth, high unemployment, and high inflation.

It is caused by a leftward shift of short-run aggregate supply, such as a sharp rise in oil prices (a negative supply shock). It is hard for policymakers because fixing unemployment and fixing inflation call for opposite policies. The 1970s U.S. economy is the classic example.