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
rise:
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)