Broadly speaking, there are three types of inflation: demand-pull inflation, cost-push inflation, and built-in inflation. Demand-pull inflation occurs when supply shortages cause upward pressure on prices. Cost-pull inflation is characterized by an increase in the prices of products and services as a result of the rising cost of wages and raw materials. Subsequently, higher production costs result in a reduction in economic output.

Built-in inflation refers to the demand for wage increases in the labor markets to meet the rising cost of living. This often results in businesses increasing the prices of goods and services to offset increasing wage costs. Inflation affects people in different ways. For business owners and employees, inflation has noticeable negative effects. However, inflation often results in an increase in the value of assets such as stocks, real estate, and commodities.