Cost-Push Inflation Research Paper

Cost-push inflation is an alleged type of inflation caused by substantial increases in the cost of important goods or services such as inputs like labour, raw material, etc. The increased price of the factors of production may cause a decline of supply of these goods. While the demand remains constant, the prices of commodities increase lead a rise in the overall price level. Not only that, Cost-Push Inflation can be also caused by:

• Increasing of the price of the commodities. For example. The rise in price of petrol oil cause higher transport cost.

• Higher tax. If the government increase the taxes, it will lead to higher prices of goods and service therefore the CPI increase.

• Increasing in wages. Wages is one of expenses of a firm. Rising

The increasing of price of raw material may cause firm decreasing their productivity.

Demand-pull inflation is in contrast with cost-push inflation, when price and wage increases are being transmitted from one sector to another. However, these can be considered as different aspects of an overall inflationary process: demand-pull inflation explains how the price inflation starts, and the cost-push inflation why inflation once begun is so difficult to

BNM also announced that the ringgit depreciated against most of the currencies of Malaysia’s trading partners to amid news of growing inflation. The cause of depreciation of ringgit was blamed on the anticipation of the scale-back of US Federal Reserve’s programs to support the US economy. However, outlook of the national economy still consider positive. According to the Star, Alliance Research chief economist Manokaran Mottain expects inflation rate in Malaysia to average 3.2% and peak at 3.8% in August. However, he also expects the national economy to see a 5% year-on-year growth next year, an improvement from the estimated 4.6% growth estimated in 2013. Another article from The Star quoted Edward Lee Wee Kok, regional head for Standard Chartered Bank’s South East Asia Global Research, as saying that Malaysia’s inflation rate is projected to be at 3.4% for the first three quarters of 2014 due to slower consumption, as a result of higher prices on consumer goods. The firm also cited subsidy rationalisation as a reason behind its inflation projection. Lee said their forecast for Malaysia’s economic growth for 2014 is