COST-PUSH INFLATION
Back to GlossaryDefinition
Inflation driven by rising production costs—such as wages or input prices—that firms pass on to consumers.
Summary
Cost-push inflation occurs when the overall price level in an economy rises because businesses face higher costs to produce goods and services. Think of it like a chain reaction: when companies pay more for raw materials, labor, or energy, they typically raise their prices to maintain profit margins. This pushes the general price level upward throughout the economy. Unlike demand-pull inflation (where too much demand drives prices up), cost-push inflation starts on the supply side when production becomes more expensive.
Usage Context
Understanding cost-push inflation is crucial when analyzing different types of economic pressures, studying historical inflation episodes, comparing monetary policy responses, and distinguishing between supply-side and demand-side economic shocks.
Common Confusions
- Confusing cost-push with demand-pull inflation mechanisms
- Thinking that cost-push inflation always requires wage increases
- Believing that inflation always indicates a strong economy
- Assuming companies can easily absorb cost increases without price changes
- Mixing up causes (supply-side) with effects (higher consumer prices)
