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Cost-push inflation results from rising production costs, leading to reduced supply and increased prices. Supply shocks and various factors like wages, material costs, and interest rates can all drive cost-push inflation.
Cost-Push Inflation occurs when there is an increase in the costs of production, leading to a decrease in the supply of goods and a subsequent rise in prices. This situation is exemplified by the oil crisis of the 1970s, where surging oil prices impacted various industries and raised production costs.
Supply shocks, such as sudden changes in commodity prices, can drive cost-push inflation by shifting the aggregate supply curve to the left. Factors like rising wages, material costs, or interest rates can all contribute to reducing the supply of goods and services.
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