A type of persistent inflation caused by deficiencies in certain conditions in the economy such as a backward agricultural sector that is unable to respond to people’s increased demand for food, inefficient distribution and storage facilities leading to artificial shortages of goods, and production of some goods controlled by some people.
It is prevalent in the Developing and Low-Income Countries mainly due to the weak structure of their economies. As a result of these imperfections, some sectors of the economy like agriculture will witness shortages of supply, whereas some sectors like consumer goods will witness excessive demand.
Such economies face the problem of both shortages of supply, underutilization of resources as well as excessive demand in some sectors.
For Example: In India, let’s assume that the farmer produces fruits and vegetables at Rs. 5000 per quintal. But the final consumer gets the same at Rs.10000 per quintal. The huge disparity between what farmer receives and consumer pays is due to infrastructure and agriculture bottlenecks. The bottleneck arises mainly due to lack of roads, highways, cold chains and underdeveloped agriculture markets. All these increases the cost of transporting goods from farmers to consumers leading to inflation.
Note: Structural Inflation can arise due to the government’s monetary policy rather than to supply of and demand for goods and services. Inflation that occurs because a government pursues an excessively loose monetary policy. That is, if a central bank prints too much money or keeps interest rates too low for too long.