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Cost push inflation is a sign the economy is in danger. Here's the explanation!

Some of you may have had difficulty experiencing the phenomenon of cost push inflation, where almost all goods prices rose rapidly. Cash push inflation is a type of inflation whose existence is quite detrimental to several parties.

In the world of economics, OCBC friends can find a cost push inflation curve that shows the extent of the decline due to a surge in production costs. To know the meaning of cost push inflation, examples, and the causes, consider the following review carefully!

Definition of cost push inflation

Have you ever found a number of product prices soaring high? This phenomenon is quite common in the world of economics and is commonly known as inflation. In general, the phenomenon of inflation occurs for several reasons.

OCBC friends need to know that basically there are 3 types of inflation that can affect the economic status of a country, including demand pull inflation, cost push inflation and mixed pull inflation . However, experts believe that of the three types, cost push inflation is the most prone to occur.

Cost push inflation is a fairly large inflation phenomenon and its existence is considered to be very detrimental to many parties. One of the causes of cost push inflation is the depreciation or contraction of the economic system.

This means that cost push inflation can occur if production activities in the world economy are experiencing a severe decline and make the domestic circulation of money lose stability so that it has an impact on increasing product prices on the market.

That is why many experts state that the existence of cost push inflation is a sign that the economy is in danger.

This phenomenon generally occurs due to cost push or cost push (production cost surge) which can be seen through the cost push inflation curve . If you still want to explore the meaning of cost push inflation and its causes further, read the following article to the end!

Causes of cost push inflation

In the world of economy, cost push inflation is a phenomenon that can occur due to several main factors, namely:

Large labor wages

In the process of producing goods, cost push inflation usually occurs because the wages of workers are considered too large but not proportional to the quality of their production. This phenomenon is believed to be detrimental to many parties because it directly affects the company's income value.

Devaluation

Cost push inflation is an economic phenomenon that can occur due to the practice of devaluation. Referring to the definition according to the KBBI, devaluation is a deliberate decrease in the value of a currency against the currency of another country by the government.

This phenomenon can also have an impact on the increase in the price of production raw materials obtained by import, causing the circulation of money to become unstable.

Raw material prices

OCBC friends may know that rising raw material prices can also affect the production process and cause cost push inflation. Well, the raw materials in question are also quite diverse, such as oil or other natural resources whose supply is running low.

Taxes

The next cause of cost push inflation is taxes . The phenomenon that can be classified as cost push inflation is cigarette production. As you know, cigarette excise taxes are notoriously high and even increase from time to time.

In this case, the tax burden tends to be imposed on consumers by increasing the selling price, resulting in the phenomenon of cost push inflation .

Inflation type

Inflation is a phenomenon that cannot be denied. In general, there are five types of inflation based on their causes, including cost push inflation . In order for OCBC friends to understand thoroughly, several types of inflation apart from cost push inflation are as follows.

Demand pull inflation

This type generally occurs when there is a high demand for goods. That is, no matter how much demand is sticking out, producers must agree and fulfill it.

Bottle neck inflation

In short, bottle neck inflation is a combination of two types of inflation, namely demand pull inflation and cost push inflation. This type of inflation can arise because there is supply and demand in the economic world, so it is often called the middle line between demand pull inflation and cost push inflation .

How to deal with inflation

  • As OCBC friends know, the cost push inflation curve shows how much an increase in production costs causes a decrease in aggregate. So, so that the spike in the curve doesn't have a bad impact on the economy, here are some ways to deal with inflation.
  • Increase production resilience, especially in worker productivity and the quality of domestic staples.
  • Make the best use of the price of goods and taxes.
  • Cost push inflation is a situation that arises when consumers buy products in large quantities too often. Therefore, it is important to reduce consumptive behavior so that this inflation can be overcome.
  • Increase import activities and reduce export activities.

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