Cost-Push Inflation

What Is Cost-Push Inflation? Learn about this economic dynamic and the things you can do to hedge against it. What Is Cost-Push Inflation? Cost-push is one of two types of inflation, the other being demand-pull. Cost-push inflation is associated with a supply shock - when one or more factors decrease aggregate supply and increase costs. Inflation is the increase of prices for goods and services in an economy. Inflation is triggered anytime the demand for goods and services exceeds the supply. DID YOU KNOW? When the price of a good or service increases, but demand does not decrease, the good or service is price inelastic. Conversely, when the price increases and demand decreases, the good or service is price elastic. What Causes Cost-Push Inflation? Cost-push inflation occurs when the costs of delivering products and services increase broadly throughout an economy, but demand remains firm. This usually stems from a shortage of a key resource. Shortages can happen for various reasons and are most common after natural disasters or geopolitical shocks. Unless companies find a way to operate efficiently in spite of the regulatory constraints they face, consumers are likely to face higher prices. Is Inflation Ever a Good Thing? A moderate and consistent level of inflation (2% to 3%) is generally considered a sign of economic health that encourages sustainable growth. However, unexpected and elevated levels of inflation can have a destabilizing effect on an economy and erode the purchasing power of its people. The most significant inflation risk exists for retirees living on fixed incomes and low-income households.