Cost-Push Inflation — Peter Cooper

Inflationary pressures can originate from the demand side or the supply side of the economy. Demand-side inflation, known as demand-pull inflation, becomes increasingly likely as the economy nears full capacity. Inflation driven from the supply side, referred to as cost-push inflation, is possible in the absence of any excess demand for goods and services.

A supply shock can cause one-off price hikes, independently of demand conditions, but for the one-off effect to act as a catalyst for cost-push inflation there needs to be a socioeconomic process capable of reinforcing the initial effect and a pliant institutional setting. The most likely candidate is ongoing conflict over the distribution of income, expressed through workers’ wage demands and/or firms’ price-making behavior, with endogenous credit accommodating the wage and price movements in nominal terms....

heteconomist
Cost-Push Inflation
Peter Cooper