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What Is Cost Pull Inflation And What Are The Reasons For This Inflation?

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Muhammad Abdullah786 Profile
Wages push inflation:If the increase in wages, under labor unions pressure, is high than their labor productivity, the cost of production goes up. The businessmen raise the price of products which gives a spurt to prices.

Profits push inflation:If the producers of certain commodities have monopoly or near monopoly power in the market, they fix up higher profit margins arbitrarily without any increase in other elements of cost. When a few powerful firms increase the profit margins, the higher profit margins, thus inflate the price level.

Material push inflation:
If there is increase in the prices of some basic materials such as gas, steel, chemicals. Oils etc which are used directly or indirectly in almost all industries, it causes an increase in cost of production and hence in the general price level.

Higher taxes:
If the government levies new taxes and raises the rates of old taxes, the producers generally shift the burden of taxes on to the consumers. The increase in the selling price of the commodities pushes up the inflationary trend in the economy.The cost push inflation can be contained only by appropriate wage and income policies and imposition of some degree of the direct controls.
Anonymous Profile
Anonymous answered
COST PULL INFLATION: Is the incraese in the cost of production.
REASONS FOR THIS INFLATION
1. Increase in wages and salaries
2. Increase in profit margin
3. Decrease in productivity
4. Cost of imported capital and intermediary goods
5. Natural deserster
Nouman Umar Profile
Nouman Umar answered
If in country the rise in the general price level is also caused by rising cost of the factors of production. It is called cost push inflation. Cost push can be incurred due to many reasons. One reason could be the increase in the wages. It can be one of the factors for the increase in the inflation is the rise in wages not backed by increase in productivity. The compensatory wage increase and the rise in prices are chasing each other at quite a rapid speed causing persistent rise in the level of prices. The second reason could be the rising prices of the imported goods.

The import prices of oil, chemicals, fertilizer non-electrical machinery have gone up in the world market. The cost and also so the prices of commodities using the imported items have gone up in the country. The third reason is increase in the indirect taxes. The increasing in the revenue of the government is mainly replying in the indirect taxes. The increase in the direct taxes every year has given the general price level an inflationary push. The devaluation of currency is one of the reasons for the inflation in the country. Depreciation of the currency thus is an important factor for the rise in the average level of prices in Pakistan.

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