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Inflation BY AYUSSH SANGHI Causes of Inflation - Part 4.5
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Causes of Inflation We have already discussed types of inflation on the basis of causeS: . Demand Pull Inflation Cost Push Inflation
Cost Push Inflation Multiple factors are responsible for rise in the prices of goods and services. It is majorly also due to a scarcity in the supply of goods and services and an overall increase in the cost of production and distribution of goods and services. We are going to discuss causes of cost push inflation.
Causes A. Increase in Input Cost (Wages) . If rise in Input Cost like wages is greater than the rise in productivity, it would push up costs and thereby push up the prices. This also acts on the demand - pull side because rising wages lead to rising demand too.
Causes B. Increase in Indirect Taxes Taxes such as: . excise, custom duties, VAT and CST . raise the cost of production as these taxes are on the commodities
Causes C. Output and Supplv often fluctuates . Prices tend to rise when there occurs excessive fluctuations in output or when there occurs speculative hoarding of the available output. In the Indian context, this often happens with agricultural commodities production. This leads to scarcity of goods and rise in price level Seasonal factors play a very important role in creating shortage of agricultural goods from time to time.
Causes D. Infrastructural Bottlenecks Infrastrcutural Bottlenecks such as: shortage of power, transportation - raise per unit cost of production and hence the price level in general.
Causes D. Increase in Administered Prices Administered Prices are the Minimum Support Prices such as procurement prices of food grains, petroleum prices. which are fixed by government tend to push up the price level, as they result in more savings in a common man's budget.
Causes D. Increase in Import Prices . It pushes up domestic price level and leads to import cost - push It pushes up domestic pri inflation