Cost-push inflation

Cost-push inflation is caused by factors, which push up the cost of production.

1) Increased salaries and wages. Salaries and wages are the largest single cost in an economy. In South Africa remuneration for Labour constitutes 60% of the cost of producing goods and services

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2) The second important cost to the economy is the cost of imported capital and intermediate goods eg. oil, machinery and equipment. These goods are essential to the functioning of the manufacturing sector. When the prices of these imported goods increase either to increased prices around the world or a devaluation of our currency, the results will be an increase in production costing.

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3) The third source of cost-pull inflation is increased profit margins. Like wages, interest and rent, profit is also included in the cost of production. When firms push their profit margins they are raising the cost of production and ultimately also the consumers have to pay.

Cost-push inflation (producer)

Cost-push inflation is triggered by an increase in production costs.

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The fifth source is natural disasters such as droughts and floods. They raise the cost of production and the prices of agricultural and other related products.

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The fourth source is decreased productivity. If various factors of production become less productive while receiving the same remuneration, the cost of producing each unit will increase.

Control measures

To avoid cost-push inflation, measures have to be taken to avoid increases in production costs. 👉 increases in wages/salaries and profits have to be kept under control. 👉 Increased productivity can also help to combat cost-push inflation.