We all are aware about the two types of inflation prevalent in the economy. One is the demand pull inflation and second is the cost push inflation. As the name suggests, demand pull inflation is caused by excessive demand arising from high liquidity while cost push inflation is a result of increase in basic commodity prices. However, there is a third type of inflation that is also relevant in the Indian context. It is known as asset driven inflation which is caused by increase in asset prices. Let us understand in more detail about it.
If the returns from any asset increase, then it is natural that the demand for that asset class rises. Take the case of real estate and gold for example. Increasing returns from both these assets has led to considerable increase in their demand and thus prices. This pushes up inflation. And considering that the demand keeps on increasing as the returns from that particular asset class are rising, it creates an inflation spiral. In short, rising return from an asset class creates a vicious circle of increasing demand and resultant inflation. Click here to read more on RBI unable to control inflation…
Related Case Studies:
- Case Study: Inflation in India Inflation one generally means rise in prices. To be more...
- A Look Into Economical Bubbles The behaviour of commodity prices and U.S./European housing market prices...
- The corporate governance of an organisation managing Islamic charitable endowments (waqfs) Charitable endowments (known in Arabic as waqfs) or pious endowments...
- Case Study on Welsh Asset Services Asset Management: The asset management team at Welsh can take...
- A Case Study of Ignis Asset Management Facing Challenge: Ignis Asset Management manages £69 billion of securities...