Cost-Push Inflation

Cost-push inflation is a type of inflation caused by rising costs of production, leading businesses to increase prices to maintain profit margins. This can result from various factors, including higher wages, increased costs of raw materials, supply chain disruptions, and higher taxes. As production costs rise, companies pass these costs onto consumers in the form of higher prices, leading to a general increase in the price level.

Unlike demand-pull inflation, which is driven by strong consumer demand, cost-push inflation is supply-side driven. This type of inflation can be more challenging to control because it is often related to external factors, such as global commodity prices or regulatory changes. Persistent cost-push inflation can lead to a wage-price spiral, where higher wages lead to higher prices, which in turn lead to demands for even higher wages.

1. An increase in the price of oil leading to higher transportation and production costs, causing a rise in consumer goods prices.
2. New environmental regulations increasing the cost of manufacturing, resulting in higher prices for products.
3. A significant increase in wages due to labor strikes, prompting businesses to raise prices to cover the additional labor costs.