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Cost-Push Inflation — Peter Cooper

Summary:
Inflationary pressures can originate from the demand side or the supply side of the economy. Demand-side inflation, known as demand-pull inflation, becomes increasingly likely as the economy nears full capacity. Inflation driven from the supply side, referred to as cost-push inflation, is possible in the absence of any excess demand for goods and services.A supply shock can cause one-off price hikes, independently of demand conditions, but for the one-off effect to act as a catalyst for cost-push inflation there needs to be a socioeconomic process capable of reinforcing the initial effect and a pliant institutional setting. The most likely candidate is ongoing conflict over the distribution of income, expressed through workers’ wage demands and/or firms’ price-making behavior, with

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Inflationary pressures can originate from the demand side or the supply side of the economy. Demand-side inflation, known as demand-pull inflation, becomes increasingly likely as the economy nears full capacity. Inflation driven from the supply side, referred to as cost-push inflation, is possible in the absence of any excess demand for goods and services.

A supply shock can cause one-off price hikes, independently of demand conditions, but for the one-off effect to act as a catalyst for cost-push inflation there needs to be a socioeconomic process capable of reinforcing the initial effect and a pliant institutional setting. The most likely candidate is ongoing conflict over the distribution of income, expressed through workers’ wage demands and/or firms’ price-making behavior, with endogenous credit accommodating the wage and price movements in nominal terms....

heteconomist
Cost-Push Inflation
Peter Cooper
Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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