cost-push

An economic condition where rising costs of wages and raw materials drive up overall prices.

Cost-push inflation occurs when the aggregate supply of goods and services decreases because of rising production costs, such as wages, raw materials, or energy. Because it costs more to produce the same output, businesses preserve their profit margins by passing these higher expenses on to consumers in the form of higher retail prices. Unlike demand-pull inflation, which is driven by strong consumer spending, cost-push inflation is driven by supply-side disruptions. It is often triggered by sudden geopolitical events, natural disasters, or regulatory changes that restrict supply or make key inputs scarcer and more expensive. For investors, cost-push inflation is generally a negative signal because it can severely squeeze corporate profit margins, particularly for companies that lack the pricing power to pass costs along to customers. It also presents a major policy dilemma for central banks; raising interest rates to combat inflation can further depress an economy already struggling with supply constraints, potentially leading to stagflation.

Company A manufactures industrial machinery. Due to a sudden global shortage, the cost of steel rises from $800 to $1,200 per ton, while factory wages rise by 10%. To maintain its historical 15% operating margin, Company A increases the selling price of its standard machine from $100,000 to $115,000, passing the $15,000 cost increase directly to the buyer.