To keep consumer prices stable, monetary policy committees must identify the underlying microeconomic drivers of inflation. Price pressures are broadly categorized into Demand-Pull Inflation and Cost-Push Inflation.
Demand-Pull Inflation Frameworks
Demand-pull inflation occurs when aggregate demand for goods and services expands faster than the economy’s structural production capacity. This imbalance typically occurs during periods of excessive credit growth, low interest rates, or fiscal expansions.
Cost-Push Inflation Frameworks
Cost-push inflation is driven by sudden increases in production costs that force corporations to raise prices to protect profit margins, regardless of demand levels:
  Inflation Driver |   Primary Economic Cause     |   Monetary Policy Dilemma Stance
------------------+------------------------------+---------------------------------------
  Demand-Pull       | Excessive credit expansion   | Clear choice: Raise policy rates to cool demand
  Cost-Push         | Supply shocks (Energy, Raw)  | Trade-off: Raising rates
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