Page "Cost-push inflation" Paragraph 1

Cost-push inflation is a type of inflation caused by substantial increases in the cost of important goods or services where no suitable alternative is available.

A situation that has been often cited of this was the oil crisis of the 1970s, which some economists see as a major 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 petroleum imposed by the member states of OPEC.

Since petroleum is so important to industrialised economies, a large increase in its price can lead to the increase in the price of most products, raising the inflation rate.

This can raise the normal or built-in inflation rate, reflecting adaptive expectations and the price / wage spiral, so that a supply shock can have persistent effects.