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Inflation and purchasing power calculatorTable of contents
Inflation rarely comes from a single source. Most often it is a mix of mechanisms that overlap and reinforce each other. To see how these forces affect the real value of money, check the purchasing power calculator and Effects of inflation.
This happens when demand grows faster than supply. Households and firms want to buy more, while production does not keep up. The result is higher prices. It can be fuelled by rising incomes, easier credit or strong consumer expectations.
It occurs when production costs rise: energy, raw materials, transport or wages. Companies pass part of these costs on to prices to protect margins. This is one of the most common real‑world mechanisms.
Supply shocks reduce the availability of goods and services. They can stem from supply‑chain disruptions, logistics constraints or regulatory changes. Lower supply with steady demand typically pushes prices upward.
Inflation is shaped by both domestic and global factors. Common examples include:
If companies and employees expect further price increases, firms raise prices and workers demand higher pay. This can sustain inflation even when the original shock fades.
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