TYPES OF INFLATION
Cost Push Inflation

Any factor that causes Aggregate Supply to fall or shift to the left will cause a rise in the general price level. This is known as COST PUSH INFLATION.
What could cause this?
A change in any of the following

Nominal Wages: are likely to rise in response to worker efforts to increase or maintain standards of living. Increases in nominal wages cause cost push inflation.


Import Prices: import prices change in response  to exchange rate changes and inflationary pressure overseas. A depreciation of the NZ$ can cause imported raw material costs to increase.                                   

Productivity: rises through improved technology use of capital goods. A fall in productivity can cause cost push inflation.

Production Costs: Any factor that causes a change in the cost of production for a large number of firms such an increase in the cost of electricity, stricter government regulations, increase in GST, environmental taxes or company taxes.

 
Demand Pull Inflation
 

Aggregate Demand is the total demand for all goods at each price level in an economy.
Any factor that causes Aggregate Demand to increase or shift to the right will cause a rise in the general price level. This is known as DEMAND PULL INFLATION.
A change in any of the following can cause demand pull inflation.

Consumption which is affected by:
Disposable Income  through decreases in income tax or household wealth (increase in house prices etc.) will cause demand pull inflation.                                                                         
Interest Rates If interest rates fall, debt servicing (cost of mortgages) is cheaper. Credit spending will also increase for example hire purchase.                                                                            
Inflationary Expectations    If consumers think prices are going to increase, then they will buy now in order to avoid the higher price in the future. This will cause an increase in household spending now.                                                                                                       
Consumer confidence    If consumers are confident about the future then they will increase household spending (secure about jobs etc.)                                  

Government Spending which is affected by:
Revenue   An increase in tax revenue – either direct or indirect will affect government spending. During times of high revenue government are more likely to increase spending.                                               
Elections    A change in government will cause a change in spending priorities. Left wing governments are more likely to increase spending on social services and infrastructure.                   

Investment which is affected by:
Interest Rates   Lower interest rates lower the cost of borrowing or investing. It is more likely you will earn a profit onyour investment if the financing cost of that investment is lower.                                                            
Business Confidence   This is a measure of how firms perceive the economic outlook. High confidence means firms anticipate a positive future. Investment is likely to earn rewards in future profit, so is likely to increase.                                     

Net exports which are affected by:
Exchange Rates A fall in the exchange rate will cause net exports to increase, as our exports become relatively cheaper overseas. Imports become relatively more expensive if the NZ$ depreciates.     
 Interest rates   An increase in interest rates is likely to increase overseas investment in NZ. This will increase the demand for NZ dollars and so the exchange rate will increase (appreciation).                                                        
Overseas Demand   factors affecting our overseas markets may change, for instance our export markets may experience an economic boom. This will increase demand from overseas and so increase net exports.