Types of Inflation: Demand-Pull, Cost-Push and Built-In

Inflation on the Consumer Price Index (CPI) reached 9.1% in the year to June 2022, the fastest since 1981. A measure built at the Federal Reserve Bank of San Francisco (the San Francisco Fed) splits inflation by cause. It uses the Fed's preferred price measure, the Personal Consumption Expenditures (PCE) Price Index, which peaked lower, at 7.2%. On that split, supply problems explain about 1/2 of the extra inflation above the 2010s average. Strong demand explains just over 1/3.

Inflation has three main types by cause: demand-pull, cost-push and built-in. This guide explains each type. It then measures them in the 2021–23 US surge, using the San Francisco Fed's split, US pay data and a 2023 study by Ben Bernanke and Olivier Blanchard.

Inflation is the rate at which prices rise across the economy. We cover the basics in What Is Inflation? Here we name the types and measure them.

Demand-pull inflation starts with spending. Households, firms and the government try to buy more than the economy can produce. Sellers can then raise prices without losing customers. Government relief payments in 2020 and 2021 are a recent case, covered in What Is Fiscal Policy? New money can feed it too, as Does Money Printing Cause Inflation? shows.

Cost-push inflation starts with costs. When oil, food, parts or shipping get dearer, firms pass the cost on. Output often falls at the same time, because goods are scarce or costly to make. A shock that lifts prices while it slows growth can lead to stagflation: high inflation with a weak economy.

Built-in inflation comes from habits and expectations. Workers who have seen prices rise ask for bigger pay rises. Firms then raise prices to cover higher wage bills. This loop is called a wage-price spiral. It can keep inflation going after the first shock has passed.

Inflation is also labelled by speed. Hyperinflation is the extreme case, usually defined as prices rising more than 50% in a single month (Concise Encyclopedia of Economics).

How can you tell which type is at work? Basic economics gives a test. When demand rises, prices and the quantity sold rise together. When supply falls, prices rise while the quantity sold falls.

Adam Shapiro of the San Francisco Fed applies this test each month to more than 100 spending categories in the PCE Price Index. He compares each category's price and quantity with what their recent trends predicted:

Supply-driven prices match cost-push inflation. Demand-driven prices match demand-pull. The split has no separate part for built-in inflation. For that, we compare pay with prices further down.

The chart stacks the three parts each month, in percentage points of PCE inflation. Together they add up to about the PCE inflation rate. In 2019, they summed to about 1.5%. The demand-driven part turned negative in 2020, during lockdowns.

Shapiro found that the jump in PCE inflation in March 2021, as the economy reopened, was "mainly due" to demand. He found supply factors began to push prices up from April 2021. Supply-driven prices were the largest part throughout 2022. We come back to the latest reading, for August 2026, further down.

PCE inflation peaked at 7.2% in June 2022. It usually runs below CPI inflation, which peaked at 9.1% that month. The two measures cover and weight items differently, as we explain in What Is PCE Inflation?

The chart compares June 2022 with the 2010–2019 average, in percentage points of PCE inflation:

The three parts summed to 7.14 in June 2022, against 1.55 on average in 2010–2019. So inflation ran 5.59 points above its 2010s average on this split. Supply explains 2.84 of those points, or 51%. Demand explains 2.09, or 37%. The other 12% is ambiguous. Shapiro's first estimate, in June 2022, gave a similar answer: "a little more than half" from supply and "about one-third" from demand.

The chart compares pay growth with CPI inflation. Pay growth here comes from the Wage Growth Tracker of the Federal Reserve Bank of Atlanta. It is the median rise in hourly pay over the past 12 months, for people in work a year apart.

Prices moved first. CPI inflation ran above pay growth for 22 months in a row, from April 2021 to January 2023. Over that time, pay growth climbed from 3.2% in April 2021 to 6.7% in June 2022.

Then pay growth overtook inflation. A year after the peak, in June 2023, CPI inflation had fallen to 3.0%. Pay growth was still 5.6%. Pay that keeps rising after prices cool is the mark of built-in inflation. It keeps costs rising for firms.

Bernanke and Blanchard's 2023 study, published by the National Bureau of Economic Research, found the same order. Energy, food and shortages were "the dominant drivers of inflation in its early stages". Later, a tight labour market kept pay rising fast. That became the main factor. They also found the effects of tight labour markets last longer than price shocks.

In August 2026, pay growth was 4.1%, while CPI inflation was 3.4%. In 2019, pay growth averaged 3.7%, while CPI inflation averaged 1.8%.

The labels are tidy. Real episodes mix them.

A few checks help:

Inflation types are named by cause: demand-pull from spending, cost-push from costs, built-in from wages and prices feeding each other. In the 2021–23 US surge, supply shocks were the largest cause. Demand was close behind. Pay growth that stayed high then kept inflation going.

This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.

The same approach runs through everything else we publish:

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