Cost Push inflation

Subject: Economy

Context: The Government data shows a 2.7-37 per cent increase in prices of food items within a month’s time is pushing up the inflation.

Concept:

It is the situation when overall prices increase due to increases in the cost of wages and raw materials.
The current rise in cost of production is driven by surge in diesel prices and higher temperature affecting crops, rise in commodity price globally (due to dollar depreciation and is partly driven by expected increase in demand), increase in international freight rates
Higher costs of production can decrease the aggregate supply (the amount of total production) in the economy.
With not much change in demand for goods the price increases from production are passed onto consumers creating cost-push inflation.