Cost push Inflation: It refers to inflationary rise in prices which arises due to increase in costs. Cost push inflation is caused mainly due to increase in cost of wages and increase in profit margin.
Four causes of cost-push inflation :
(i) Higher profits: Manufacturers may be tempted to raise their profit-margins. This virus is highly infectious. It spreads fast from one commodity to another, resulting in all-round increase in prices. This type of inflation is described as profitinduced inflation.
(ii) Higher wages : As prices and costs of living rise, wage- earners may succeed in forcing employers to pay higher wage rates. The rise in wages means higher incomes whereas the output of goods cannot be increased. The result will be inflation. This is regarded as 'wageinduced inflation.'
(iii) Higher taxation : Often the government is responsible for raising the costs through imposing new taxes and raising the rates of existing commodity taxes.
(iv) Shortfalls in supply : If there occurs a serious shortfall of some critical raw material or an intermediate good or a final consumer good, it may lead to an all-round increase in prices. For example, a crop, failure may be an easy invitation to cost- push inflation.