Cost push inflation

Cost push is a type of inflation caused by arbitrary increases in the cost of goods or services where no suitable alternative is available. A situation that has been often cited as of this was the oil crisis[?] of the 1970s, which some conomists attribute as the cause of the inflation experienced in the Western world in that decade. It is argued that this inflation resulted from increases in the cost of oil imposed by the member states of OPEC.

Monetarist economists such as Milton Friedman argue against the concept of cost push inflation because they believe that increases in the cost of goods and services do not lead to inflation without the government cooperating in increasing the money supply. The argument is that if the money supply is constant, increases in the cost of a good or service will decrease the money available for other goods and services, and therefore the price of some those goods will fall and offset the rise in price of those goods whose prices have increased.

One consequence of this is that monetarist economists do not believe that the rise in the cost of oil was a direct cause of the inflation of the 1970's.

See also

Economics, Demand pull inflation