Which of the following can be considered as causes for lsquo cost push inflation rsquo 1 Rapid wage ...........

Indian Economic System(RAS) Inflation

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Which of the following can be considered as causes for ‘cost-push inflation’?

1. Rapid wage increase

2. Rising raw material prices

3. Increased labour costs

4. Natural disasters

5. Changes in Government regulations

Select the correct answer using the code given below:

1, 2, 4 and 5 only

1, 2, 3 and 4 only

1, 2, and 3 only

1, 2, 3, 4 and 5 only

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Explanation:

Economists distinguish between two types of inflation: Demand-Pull Inflation and Cost-Push Inflation. Both types of inflation cause an increase in the overall price level in an economy.

Cost-push inflation occurs when prices of production process inputs increase. Rapid wage increases or rising raw material prices are common causes of this type of inflation. The sharp rise in the price of imported oil during 2018 provides a typical example of cost-push inflation.

Some of the causes:

Increased labor costs can create cost-push inflation such as when mandatory wage increases for production employees due to an increase in minimum wage per worker. A worker strike due to stalled contract negotiations might lead to a decline in production and as a result, higher prices ensue for the scare product.

Unexpected causes of cost-push inflation are often natural disasters, which can include floods, earthquakes, fires, or tornadoes. If a large disaster causes unexpected damage to a production facility and results in a shutdown or partial disruption of the production chain, higher production costs are likely to follow. A company might have no choice but to increase prices to help recoup some of the losses from a disaster. Although not all-natural disasters result in higher production costs and therefore, wouldn't lead to cost-push inflation.

Government regulations and changes in current laws, although usually anticipated, may cause costs to rise for businesses because they have no way to compensate for the increased costs associated with them. For example, the government might mandate that healthcare be provided, driving up the cost of employees or labor.

Demand-pull inflation occurs when the demand for goods and services in an economy increases faster than an economy's productive capacity. One potential shock to aggregate demand might come from a central bank that rapidly increases the supply of money.