Looking for advantages and disadvantages of Cost Push Inflation?
We have collected some solid points that will help you understand the pros and cons of Cost Push Inflation in detail.
But first, let’s understand the topic:
What is Cost Push Inflation?
Cost Push Inflation is when prices of things go up because it’s more expensive to make them. This could be because the cost of materials, labor, or even energy has increased. So, to keep making profit, companies raise their prices.
What are the advantages and disadvantages of Cost Push Inflation
The followings are the advantages and disadvantages of Cost Push Inflation:
|Encourages technological innovation||Reduces people’s purchasing power|
|Boosts export competitiveness||Can lead to unemployment|
|May increase workers’ wages||Increases production costs|
|Stimulates economic diversification||May cause economic recession|
|Can lead to higher profits.||Can discourage investment|
Advantages of Cost Push Inflation
- Encourages technological innovation – Cost push inflation can spark technological innovation as businesses seek ways to cut costs and increase efficiency.
- Boosts export competitiveness – This type of inflation can also make a country’s exports more competitive globally, as local costs rise and goods become more expensive to produce.
- May increase workers’ wages – There might be a rise in workers’ wages because businesses need to pay more to retain their employees amidst rising costs.
- Stimulates economic diversification – It can also stimulate economic diversification as businesses venture into different sectors to spread risk and increase resilience against inflation.
- Can lead to higher profits. – Lastly, it can result in higher profits for businesses if they can pass on the increased costs to consumers by raising prices.
Disadvantages of Cost Push Inflation
- Reduces people’s purchasing power – Cost push inflation can shrink the money’s value, making things costlier and hence, lowering the buying ability of individuals.
- Can lead to unemployment – It can also cause job losses as businesses may cut down on labor to manage increased costs.
- Increases production costs – When prices of raw materials rise, it makes production more expensive, leading to higher prices for consumers.
- May cause economic recession – If not controlled, it can lead to a downturn in the economy as higher prices lower demand, affecting overall economic growth.
- Can discourage investment – Lastly, it can deter investors, as unpredictable inflation can make returns on investments uncertain.
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