Cost-push inflation is a phenomenon in which overall prices rise due to increases in production costs (inflation) such as wages and raw materials.
Cost inflation occurs when the cost of utilities increases or the level of utilities decreases. Both push prices higher unless demand changes. Shortages and rising costs of labor, raw materials and capital goods lead to higher costs. The inflation due to cost pressures could be triggered by a range of possible responses: rising unemployment. Wage increase. Increased consumer tastes and preferences. Increased consumer income. Increased number of sellers.
The Phillips curve assumes there is a relationship between inflation and unemployment. When inflation is high, unemployment is low. Conversely, low inflation increases unemployment.
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