Causes of inflation Cost push inflation

Inflation is caused by:-

Cost push inflation
Demand pull inflation
Inflation expectations

Cost Push Inflation
Cost-push inflation occurs when businesses respond to rising production costs, by raising
prices in order to maintain their profit margins. There are many reasons why costs might
Rising raw materials costs both imported and domestic.
Rising labour costs
Higher indirect taxes imposed by the government

Cost-push inflation shifts of the short run aggregate supply curve to the left and causes a
contraction of real national output Y1 to Y2) together with a rise in the general level of
prices (P1 to P)