How does Demand-Pull inflation differ from Cost-Push inflation, and what economic indices track price movements at wholesale versus retail levels in India?

[ A ]Demand-Pull occurs when aggregate demand exceeds available supply, while Cost-Push is driven by rising input/raw material costs; price levels are measured at wholesale level by WPI and at retail consumer level by CPI.[ CORRECT ]

[ B ]Demand-Pull is caused by falling wages, while Cost-Push is caused by excessive central bank gold sales; tracked only by the stock exchange Sensex.

[ C ]Demand-Pull applies only to imported electronics, while Cost-Push applies exclusively to municipal real estate taxes.

[ D ]Both inflation types are identical and represent a permanent increase in the purchasing power of cash currency.

Takeaway

Option A is correct: Demand-Pull occurs when aggregate demand exceeds available supply, while Cost-Push is driven by rising input/raw material costs; price levels are measured at wholesale level by WPI and at retail consumer level by CPI.

Derivation

Demand-Pull inflation occurs when aggregate macroeconomic demand for goods and services outpaces productive capacity ('too much money chasing too few goods'), typically in booming economies. Cost-Push inflation occurs when aggregate supply decreases due to surging input costs (wages, raw materials, crude oil, supply chain shocks). In India, inflation is tracked at the wholesale producer level by the Wholesale Price Index (WPI) and at the final consumer consumption level by the Consumer Price Index (CPI). This tests inflation concepts. The common error is confusing wholesale and retail tracking indices.

Why the others fail

B — Demand-Pull is caused by falling wages, while Cost-Push is caused by excessive central bank gold sales; tracked only by the stock exchange Sensex.

Falling wages reduce demand rather than causing demand-pull inflation, and price indices (CPI/WPI) track inflation, not equity stock indices.

C — Demand-Pull applies only to imported electronics, while Cost-Push applies exclusively to municipal real estate taxes.

Demand-pull and cost-push dynamics operate across all economic goods and services, not restricted to electronics or municipal taxes.

D — Both inflation types are identical and represent a permanent increase in the purchasing power of cash currency.

Inflation erodes and reduces the purchasing power of money over time; it never increases currency purchasing power.