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Cost Push Inflation

 Cost Push Inflation

It is subdivided into 3 kinds such as

  1. Wage Push Inflation
  2. It has been recommended that the development of powerful trade union is accountable for the increase of inflation, particularly in the developed nations. When trade unions push for elevated remunerations which are not reasonable either on causes of a previous hike in output or of cost of living they manufacture a cost push effect.

    The employers in a condition of high demand and employment are more agreeable to compromise to these remuneration claims for the reason that they believe to pass on these hikes in costs to the consumers in the form of rise in rates.

  1. Profit Push Inflation
  2. Apart from the elevated remuneration of labour devoid of any elevation in its output, there is another feature accountable for cost push inflation. This is the elevation in the profit margin by the industries working under monopolistic or oligopolistic situations and consequently charging higher prices from the customers.

    In the previous case, when the cause of cost push inflation is the hike in remuneration it is termed as wage push inflation and in the latter case when the reason of cost push inflation is the hike in profit margins.

  1. Hike in Prices of Inputs or Oil Stock Price
  2. Supplementary to the hike in remuneration rate of labour and elevation in profit margins, in the seventies the other supply shocks reasoning in marginal cost of manufacturing turn into more well-known in fetching about cost push inflation.

    During seventies hike in prices of inputs, particularly energy raw materials such as crude oil price made by OPEC consequenting in hike in rates of petroleum commodities.

Illustration 135

The below given data denotes, the whole sale rate index of a country to the years respectively. You are requisite to determine the inflation rate existing for the corresponding years.

Year

Wholesale Rate Index (WPI)

2000-2001

105

2001-2002

115

2002-2003

128

2003-2004

142

2004-2005

166

Solution

Year

Wholesale Rate Index (WPI)

      ΔP(t)   x  100
      P(t-1)

Inflation Rate in (%)

2000-2001

105

-

-

2001-2002

115

115 – 105   x 100
      115

8.7

2002-2003

128

128 – 115  x  100
     128

10.2

2003-2004

142

142 – 128  x  100
     142

9.9

2004-2005

166

166 – 142  x  100
        166

14.5

(Values rounded of to nearest percentage)

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