Demand-Pull Inflation

CFA Level I Economics
#1

So I had a practice question that asked what an initial result of demand-pull inflation would be?

A) Increase in final goods prices

B) Increase in commodity prices

Don’t remember the third answer

I chose A, my logic being that increased demand would first (initially) increase the demand for final goods, driving up their prices, which would in turn cause businesses to demand more resources to increase supply, driving up commodity prices. Thus, an impact similar to A would precede one similar to B.

However, B was the correct answer. I’m hoping someone can explain the concept of demand-pull inflation and why my logic is wrong.

Thanks!

#2

Since commodity prices are included inside of final good prices they are related, so both would increase. However, the question is asking for the “initial” result, which would be commodities first, because here you have necessities goods like bread, veggetables, fruits (food in general), then oil, gasoline (its derivatives from oil too), etc. So commodites goes up first, and the rest of good prices rises after (practically the same time, but after).

Regards

#3

Final goods prices tend to be stickier than commodities prices.