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Economics explained


Inflation and deflation

Causes of cost push inflation

Causes of cost push inflation

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Cost-push inflation occurs where the costs of factors of production rise regardless of whether or not they are in short supply.

Higher costs

Rises in costs may originate from a number of different sources, such as

Trade unions pushing up wages
Firms with monopoly power raising prices in order to increase their profits
Increases in international commodity prices
Increases in real material costs and fuel perhaps caused by a fall in the exchange rate can push up prices

Wage price spiral

Higher wages can cause a wage-price spiral. Workers gain a wage rise, which causes prices to increase, then workers seek higher wages to restore their real value and so on.

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