Example of Cost-Push Inflation
In the 1970s, the oil crisis served as a tangible illustration of cost-push inflation, particularly driven by the actions of the Organization of Petroleum Exporting Countries (OPEC). OPEC’s decision to limit oil production caused a substantial 400% surge in oil prices during this period. This sharp increase in oil prices directly impacted industries heavily reliant on oil and gas inputs, raising their production costs significantly. Faced with escalating costs, these industries had no choice but to increase the prices of their goods to maintain profitability. This real-world scenario vividly demonstrates cost-push inflation, where the spike in production costs, specifically the surge in oil prices orchestrated by OPEC, resulted in subsequent price hikes passed on to consumers across various sectors.