ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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 industrialized economies, a large increase in its price can lead to the increase in the price of most products, raising the price level.

Detailed explanation-2: -If large and sustained, oil price shocks could fuel persistent rises in inflation and inflation expectations, which should be countered by a monetary policy response. As our chart shows, the risk of such a dynamic tends to be greater when the overall inflation rate is already high.

Detailed explanation-3: -Cost-push inflation (also known as wage-push inflation) occurs when overall prices increase (inflation) due to increases in the cost of wages and raw materials. Higher costs of production can decrease the aggregate supply (the amount of total production) in the economy.

Detailed explanation-4: -Cost-push inflation happens when there is a decline in the supply of goods and services and demand remains unchanged or even grows, driving prices and inflation higher.

Detailed explanation-5: -Examples of Cost-Push Inflation Electric power suppliers need high levels of natural gas to create electricity. When global policies, war, or natural disasters drastically reduce the oil supply, gasoline prices rise because demand remains relatively stable even as supply shrinks.