What is cost-push inflation?

Cost-push inflation refers to a type of inflation that arises from an increase in the costs associated with production. This can occur when the prices of raw materials, wages, or other inputs necessary for producing goods and services rise. When production costs increase, businesses are compelled to pass those higher costs onto consumers in the form of higher prices, leading to an overall increase in the price level in the economy.

This form of inflation is distinct from demand-pull inflation, which is prompted by an increase in consumer demand. While fluctuations in interest rates and changes in demand for exports can impact inflation, they are not the primary factors that characterize cost-push inflation. Understanding cost-push inflation is essential for analyzing various economic scenarios, as it helps explain how changes in the supply side of the economy can lead to inflationary pressures.