Definition
Cost-push inflation occurs when the prices of goods and services rise because it has become more expensive to produce them. The pressure comes from the supply side of the economy: higher wages, costlier raw materials, energy price spikes, supply chain disruptions, or new taxes on production.
When input costs climb, firms facing thinner margins pass the increase on to customers through higher prices. The result is a general rise in the price level even though consumer demand has not strengthened, which distinguishes it from demand-driven inflation.
Why it matters
How it works
Imagine a sharp jump in the global oil price. Transportation, manufacturing, and agriculture all become costlier overnight. Producers raise prices to protect margins, and consumers see higher costs across many categories at once. If workers then demand higher wages to keep up, costs rise again, and a wage-price spiral can take hold. Because the root cause is reduced supply or higher input prices, the cure often lies in restoring supply rather than in monetary tightening alone.