'If cost rises price are bound to increase'. In the context

inflation

#1

‘If cost rises price are bound to increase’. In the context of this statement explain the causes of
cost-push inflation.


#2

Causes of cost-push inflation are
(i) Agricultural Price Policy of Government To safeguard the interests of the farmers, the government announces a minimum support price for agricultural produce. Although, this policy is beneficial for farmers, but it has been a major contributory factor to’the problem of inflation.
(ii) Upward Revision of Administered Prices There are a number of important commodities, which are produced in the public sector, for which price level is administered by the government. The government keeps on raising prices from time to time, in order to cover the losses of the public sector leading to cost-push inflation.
(iii) Inflation Across Borders In today’s world of globalisation, inflation across the borders have effect on a country’s price level. Since 1980, crude oil prices have shown a substantial rise. This has caused the prices to go up in the domestic market also.
(iv) Increase in the Rates of Indirect Taxes The government has increased the rate of indirect taxes like sales tax, excise duty, VAT, etc. Higher indirect taxes lead to high prices.