What type of inflation occurs when demand increases rapidly, causing short-term price increases due to production lag?

Demand-pull inflation occurs when the demand for goods and services in an economy increases significantly, often outpacing supply. This heightened demand leads businesses to raise prices due to the increased competition for available products. In the short term, producers may struggle to ramp up production to meet this surge in demand, resulting in immediate price increases as consumers are willing to pay more to obtain the goods or services they want.

This type of inflation is typically associated with economic expansion, where factors such as increased consumer spending, government expenditures, and investment drive up demand across various sectors. The rapid rise in prices stemming from demand outstripping supply reflects the characteristics of demand-pull inflation, distinguishing it from other types of inflation like cost-push inflation, which is driven by increases in the cost of production, or hyperinflation, which involves extremely high and typically accelerating inflation rates. Core inflation measures underlying long-term trends without volatile items, and does not specifically capture the short-term dynamics of demand increases.