cost-push inflation

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Related to Cost push inflation: Demand pull inflation

Cost-push inflation

Inflation caused by rising prices, usually from increased raw material or labor costs that push up the costs of production. Related: Demand-pull inflation.

Cost-Push Inflation

Inflation caused by rising costs of production. For example, if the price of a barrel of oil rises significantly, this could cause fuel prices to increase which, in turn, increases costs for transportation of food, tools, and other goods, which can cause some level of inflation across an economy. Cost-push inflation contrasts with demand-pull inflation, which is caused by a rise in demand on the part of consumers.

cost-push inflation

Rising consumer prices caused by businesses passing along increases in their own costs for labor and materials. Cost-push inflation does not necessarily result in rising corporate profits because businesses may be unable to pass through all of their cost increases. Compare demand-pull inflation.

cost-push inflation


cost-push inflation

a general increase in PRICES caused by increases in FACTOR INPUT costs. Factor input costs may rise because raw materials and energy costs increase as a result of world-wide shortages or the operation of CARTELS (oil, for example) and where a country's EXCHANGE RATE falls (see DEPRECIATION 1), or because WAGE RATES in the economy increase at a faster rate than output per man (PRODUCTIVITY). In the latter case, institutional factors, such as the use of COMPARABILITY and WAGE DIFFERENTIAL arguments in COLLECTIVE BARGAINING and persistence of RESTRICTIVE LABOUR PRACTICES, can serve to push up wages and limit the scope for productivity improvements. Faced with increased input costs, producers try to ‘pass on’ increased costs by charging higher prices. In order to maintain profit margins, producers would need to pass on the full increased costs in the form of higher prices, but whether they are able to depends upon PRICE ELASTICITY OF DEMAND for their products. Important elements in cost-push inflation in the UK and elsewhere have been periodic ‘explosions’ in commodity prices (the increases in the price of oil in 1973, 1979 and 1989 being cases in point), but more particularly ‘excessive’ increases in wages/ earnings. Wages/earnings account for around 77% of total factor incomes (see FUNCTIONAL DISTRIBUTION OF INCOME) and are a critical ingredient of AGGREGATE DEMAND in the economy. Any tendency for money wages/earnings to outstrip 99 underlying PRODUCTIVITY growth (i.e. the ability of the economy to ‘pay for/absorb’ higher wages by corresponding increases in output) is potentially inflationary. In the past PRICES AND INCOMES POLICIES have been used to limit pay awards. At the present time, policy is mainly directed towards creating a low inflation economy (see MONETARY POLICY, MONETARY POLICY COMMITTEE), thereby reducing the imperative for workers, through their TRADE UNIONS, to demand excessive wage/earnings increases to compensate themselves for falls in their real living standards.

The Monetary Policy Committee, in monitoring inflation, currently operates a ‘tolerance threshold’ for wage/earnings growth of no more than 4-1/2% as being compatible with low inflation (this figure assumes productivity growth of around


References in periodicals archive ?
The peculiarity of an opponent of cost push inflation also being an opponent of the Phillips curve provokes a couple of further thoughts about Gifford's view of inflation.
First, let us consider his attack on cost push inflation.
One observation I would make is that it is very noticeable that in all versions of the argument, Gifford's purpose in attacking the idea of cost push inflation is to argue that the decisions of the Arbitration Commission never cause inflation.
It has taken the economy on the path of devaluation aided cost push inflation and has a never ending vicious circle.
He further stated that tariff reduction unless coupled with strategic planning would lead to cost push inflation.
The scenario of Inflation consistency appears very interesting, initiation of inflation starts with demand pull inflation (from 2004), and cost push inflation took over the place with almost at end of the demand pull, creating significant decline in the economic growth (from 2008).
Cost push inflation in presence of slow economic growth (real GDP could grew within 2.
There is a real danger of continuing cost push inflation.
The analysts however argue that the inflation in the country is cost push inflation, which is driven by high oil prices and has hardly any connection with the interest rate.
On economic side, a high interest rate n currently the highest in the region n results in cost push inflation.
The decline in the tax-GDP ratio has converged on accumulating public debt, fueled cost push inflation and increased fiscal deficit.