Costpush

Cost-push inflation, or cost-push, is a type of inflation that results from rising production costs rather than excessive demand. When firms face higher costs for inputs such as wages, energy, raw materials, or taxes, they may pass these costs on to consumers in the form of higher prices.

Causes include wage settlements, increases in commodity prices, energy shocks, higher import prices, exchange rate depreciation, and tighter regulation or supply disruptions. These factors raise the marginal cost of production, leading firms to reduce output or raise prices.

In the short run, higher costs shift the short-run aggregate supply curve leftward. If aggregate demand remains unchanged, the result is a higher price level and, potentially, lower output and higher unemployment—conditions sometimes referred to as stagflation. If demand is strong, price increases may be accompanied by continued growth but still reflect rising costs.

Distinction from demand-pull inflation: cost-push is driven by supply-side factors rather than demand pressures. The term can be controversial, as observed price increases can reflect a mix of supply and demand dynamics, including wage-price interplay.

Policy responses typically emphasize supply-side measures to reduce production costs (for example, energy efficiency, deregulation, investment in productivity) and monetary policy to curb inflationary expectations. Fiscal measures may target relief for essential goods or offset adverse income effects.

Historical examples include energy price shocks in the 1970s. Costs may become embedded in expectations, potentially prolonging inflation even after initial cost pressures ease.