The concept of cost-push inflation emerged after the Second World War to describe the price increases arising from labour unions pushing up wages despite excessive unemployment. With the oil price shocks of the 1970s, it was used to describe any important shift up in supply schedules at given levels of aggregate demand. Most central banks differentiate between supply shock effects and demand effects by distinguishing between overall inflation and core inflation, the latter omitting the direct contribution of shocks to oil and food prices, the two most important sources of supply shock large enough to register on broad inflation measures.
KeywordsAggregate demand Business cycle Cost-push inflation Excess demand Expectations Full employment Incomes policies Inflation Labour supply Learning Market power Monetary policy Natural rate of unemployment Organization of Petroleum Exporting Countries (OPEC) Phillips curve Stabilization policy Sticky prices Supply shocks Trade unions Unemployment Wage inflation Wage rigidity
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