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

see 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

2 3/4 -3%). See INFLATION, INFLATIONARY SPIRAL, COLLECTIVE BARGAINING.

References in periodicals archive ?
However, as both inflation stability and output stability are mutually exclusive, cost-push inflation and adverse supply shocks create a difficult policy trade-off for the policymakers - raising the interest rate to reduce cost-push inflation will result in a larger output loss at each inflation rate, and vice versa.
This is expected to have an effect on the entire economy by inducing cost-push inflation. This will have the impact on the food security of our country also.
Cost-push inflation will drive up the Consumer Price Index, ostensibly justifying further increases in the interest rate, in a self-fulfilling prophecy in which the FOMC will say, "We tried--we just couldn't keep up with the CPI."
BMIAaAaAeAeAaAaAeA@'s view is underpi by the fact that the cost-push inflation driven primarily by subsidy cuts would not impact the country's large expat population, whose spending power is not dependent on state support.
Overall, it seems likely that cost-push inflation has more of an impact at this juncture.
From this paradigm arises the question addressed in this article, namely, whether growth in labor compensation costs (a major component of the cost of production) is a predictive indicator of price inflation in components of final demand (cost-push inflation) or whether price inflation in components of final demand (i.e., consumer prices and finished-goods prices) is a predictive indicator of growth in labor compensation costs (demand-pull inflation).
Erdoy-an certainly has in mind a cost-push inflation mechanism.
These include concerns with 'cost-push inflation' (blaming the unions), the nature of the balance of payments constraint, beliefs about the unemployment-inflation trade-off (depicted by the Phillips curve), the influence of monetarism, the effects of floating the dollar, concern with the 'wage overhang' (oh dear, unions again!) and much more.
Anyhow, the recipe of the IMF suggesting increase in the electricity and gas tariff would create more problems and difficulties, as increase in the rates of utilities produces ' multiplier effect', leading to cost-push inflation.
Cost-push inflation basically means that prices have been "pushed up" by increases in costs of any of the four factors of production (labour, capital, land or entrepreneurship) when companies are already running at full production capacity.
This paper presents an analysis of both types of inflations by testing and verifying Wage Rate (WR) Government Expenditures (GE) Exports (Exp) and Interest Rate (IR) for cost-push inflation; and Money Supply (MS) Net Foreign Aids (NFA) Imports (Imp)
This may lead to cost-push inflation in the country." Varghese added that a weakness in the Indian rupee was increasing the fuel inflation in India because India's major inputs are crude and coal.