cost-push inflation

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Related to cost-push inflation: demand-pull inflation, Phillips curve

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 ?
Regression of two models is used to test for the existence of demand-pull or cost-push inflation in Pakistan.
Cost-push inflation arises from increases in relative prices particular to individual markets that pass through permanently to the price level.
The bad news is that declining revenues, coupled with cost-push inflation, could mean that General Synod will once again face a deficit budget in 2014.
The UAE is going to face cost-push inflation because a lot of its consumer and intermediate production goods are imported [from India]," Dalton Garis, an Abu Dhabi-based economist, told Gulf News.
Gifford and the cost-push inflation fallacy', History of Economics Review, 47(1), pp.
Earnings for those oil and gas companies with larger E&P exposure are more vulnerable to cost-push inflation, as their E&P margins are smaller than those of integrated companies.
The move is totally against the expectations on business doing community as the ground has been set for cost-push inflation, he added.
Secondly, by pushing Pakistan to increase its electricity tariff and interest rates, the cost of production has increased, resulting in cost-push inflation on the one hand, and making Pakistani products uncompetitive in the world market on the other, in addition to increasing poverty because of inflation.
Li said, 'This round of price inflation was triggered by 'cost-push' movement, but if monetary policy is too loose, it will cause cost-push inflation to become more serious inflation.
The government should do its utmost to prevent stagflation, which is a recession accompanied by cost-push inflation.
It is obvious from the new taxation proposals and expenditure reduction strategy that the budget would promote cost-push inflation.
Students could also research other causes and aspects of inflation, including cost-push inflation and the Consumer Price Index.