Types of Cost Push Inflation

Cost push inflation can be defined as that inflation which is caused by increase in the cost of production of goods and services. In order to understand more about cost push inflation one should look at its types. There are 3 types of cost push inflation –

Types of Cost Push Inflation

Wage Push Inflation

It is a type of inflation which is caused due to increase in wages of labor more than increase in their productivity in work. Since the producers have to pay more to workers they will increase the price of goods and hence increasing the inflation. Usually this type of inflation occurs when there are strong labor unions. So for example if workers are producing 100 units and there wages are $100, now if labor unions demand for increase in wages by 20 percent and company increases the wages to $120, but the output of workers increases to 110 units only then this difference between the rise in output and rise in wages is wages push inflation.

Profit Push Inflation

This type of inflation is caused when entrepreneurs or producers in their drive for greater profits raise prices of goods and services more than the required and hence it leads to inflationary conditions. So for example if the companies raise the price of product from $100 to $120 without any corresponding rise in the price of inputs and wages than this 20 percent rise is called profit push inflation.

Supply Shock Inflation

A supply shock implies a drastic reduction in the supply of goods like failure of crops due to bad weather or reduction in the supply of oil by OPEC (organization of petroleum exporting countries) etc… which leads to shortage in quantities of goods and services and hence increase the prices leading to inflation.

Hence from the above one can see that cost push inflation is from the production side rather than consumption side which is the case with demand push inflation.

1 comment… add one

Leave a Comment

Related pages

ideal liquidity ratiobank loan advantages and disadvantageswhat is a decentralised structurefull form of demat accountvertical merger advantages and disadvantagesthe advantages and disadvantages of capitalismdirect fx quoteunearned revenue entrymixed economy in nigeriaadvantages and disadvantages of fifowhat is the meaning of conglomerate companymeaning consigneeexplain capmwhere is unearned revenue recordedadvantages of socialist economymeaning of balance sheet in hindidistinguish between normal and inferior goodsfactors that influence elasticity of demandcosting and pricing methodssystematic and non-systematic riskdupont equation analysisdifference between joint venture and partnershipunearned service revenue still unearned journal entryadvantages and disadvantages of bank overdraftmonopolistic economy definitionaudit evidencesdifference between unqualified and qualified audit reportwhat are some examples of command economymarket skimming pricing examplefull form of bhelcash inflows examplesdisadvantages of market penetrationcreditors journal entrydifference between monopoly and oligopolypayback period advantages and disadvantagesdefinition of marginal costinghire purchase advantages and disadvantagesadvantages and disadvantages of specialisationwhat is autocratic leadership stylewhat are the disadvantages of international tradehypothecationsmeaning of forward rateadvantages and disadvantages of payback periodunearned revenue t accountwhat is factoring in financial managementmonopolistic companydisadvantage of industrializationdirect quotation to indirect quotationadvantages of absorption costingoligopoly equilibriumadvantages of venture capitalistsadvantages of deflationwhat is a horizontal mergertypes of factoringjournal entry unearned revenuewhats a conglomeratepartnership profit sharing ratiobalance sheet horizontal analysisreal world example of monopolistic competitionconglomerate companies examplesfeatures of globalisationwhat is the difference between accounts payable and accounts receivablemarket based pricing advantages and disadvantagesdifference between micro and macro economics pdfunsystamatic risklifo systemfeatures of privatizationthe scope of macroeconomicscpi acronymadvantages of autocracy governmentpositives of urbanisationslr and crrwholesale banking productsquote driven marketadvantages of barter tradeunearned revenue journal entrymerits of globalizationdisadvantages of cash flow forecastdifference between accounts payable and bills payable