What is the bottleneck theory of inflation?

Question

What is the bottleneck theory of inflation?

Answer 1

When certain constraints like shortage of critical infrastructure capacity like say roads, port , power, housing that takes long time to ease, create hurdles to growth in production or economic growth in the face of rising demand, the prices tends to rise. Such constraints are called bottlenecks to augmenting supply of goods though there is enough capacity to produce extra goods for which there is enough dmand, the inflation resulting from such constarints are called bottleneck (induced) inflation. This is the theory of bottleneck inflation wjich recommends removal of such bottlenecks through appropriate govt policy and support to capacity creation in constrained sectors like infrastucture of critical raw material. This is part of supplysode economics.