Cost-push inflation
Cost-push inflation arises when higher production costs or adverse supply conditions create upward pressure on the general price level. Energy, imported inputs or supply disruption can raise costs across many sectors. Firms’ pricing power, margins, productivity and demand affect how far costs pass into prices. Such a shock can combine higher inflation with weaker real output, creating difficult policy trade-offs.
Worked example
A broad energy-price shock raises manufacturing and transport costs. Some businesses increase selling prices while others absorb part of the increase in lower margins; the overall effect depends on demand and competitive conditions.
Common mistake
Do not assume every cost increase passes fully and immediately to customers or that demand must also be expanding. Distinguish a supply shock from demand-led pressure.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | BT | Direct | September 2026–June 2027 |
| FIA | FBT | Direct | September 2026–June 2027 |