Definition of Cost-Push Inflation and Simulation Examples. Have you ever experienced a condition where goods and daily necessities on the market rise rapidly? There is of course a reason for that. In addition to the scarcity of goods, it can also be caused by a condition known as inflation. Cost-push inflation is one type of inflation. This time, Klikasuransiku will discuss this type of inflation as well as its simulation.
Definition of Inflation and Cost-Push Inflation
Before going into the explanation of cost-push inflation, you need to first know about inflation because the two are related, and cost-push inflation is part of inflation. Inflation is a condition where the value of a country’s currency (paper) has decreased.
The cause of the decline in the value of this currency is that paper money circulating in the community circulates very much and quickly. This also causes the price of goods in the market, both basic needs and others to rise rapidly. In this case, inflation is divided into two types, cost-push inflation, and demand-pull inflation.
Cost-push inflation is part of inflation. The definition of cost-push inflation itself is inflation that occurs due to a cost-push or can also be called an increase in production costs. In this case, controlling inflation due to cost drives can be controlled by increasing the rate of economic growth rather than having to go through monetary policy.
Several Things Trigger Cost Push Inflation
Rising costs can lead to inflation. As a follow-up to the increase in costs, of course, the company will increase the selling price to still make a profit. The following factors are causing the cost-push:
1. Wages
In this case, it includes the costs incurred to pay for the labor or human resources used. Increased costs for employees rather than productivity can of course lead to lower profits
2. Prices of Raw Materials and Energy
In this case the increase in the price of raw materials or the main energy in the production process, rising oil prices can be an example. In addition, the lack of supply of raw materials due to natural disasters can also be an example.
3. Tax
Of course, rising tax costs can also cause cost-push inflation. An increase in import duty taxes such as cigarettes will cause a tax burden on consumers by increasing product prices
4. Devaluation
In this case, there is government intervention where the value of the domestic currency decreases compared to foreign currency. This causes the price of imported goods to increase which is the raw material for production.
Cost-Push Inflation Solution Simulation
To overcome the problem of cost-push inflation, of course, the government must make looser policies to stimulate aggregate demand so that the price level can increase again. This of course will have a different ending if the government chooses to carry out a strict policy. Maybe inflation will go down but this policy will have a bad impact on unemployment due to the recession.
In addition, companies can also reduce production costs to help overcome cost-push inflation. In addition, the government can also assist in the form of wage subsidies for employees so that production costs incurred by companies are lower. Economic productivity can also be increased by increasing the capabilities and skills of human resources
So that’s the understanding and also an example of cost-push inflation and the solutions that can be taken to overcome this type of inflation. Hopefully, this information can add to your knowledge regarding this type of inflation.