Cost push inflation can be defined which is caused by increase in the cost of production of goods and services. There are 3 types of cost push inflation –
1. Wage Push Inflation – It is a type of inflation which is caused due to increase in wages of labor more than increase in their productivity in work. Since the producers have to pay more to workers they will increase the price of goods and hence increasing the inflation. Usually this type of inflation occurs when there are strong labor unions.
2. Profit Push Inflation – This type of inflation is caused when entrepreneurs or producers in their drive for greater profits raise prices of goods and services than required and hence it leads to inflationary conditions.
3. Supply Shock Inflation – A supply shock implies a drastic reduction in the supply of goods like failure of crops due to bad weather or reduction in the supply of oil by OPEC (organization of petroleum exporting countries) etc… which leads to shortage in quantities of goods and services and hence increase the prices leading to inflation.
Hence from the above one can see that cost push inflation is from the production side rather than consumption side which is the case with demand push inflation.