ACCA Applied Knowledge · Business and Technology · Macroeconomic factors
A country's central bank notices that prices are rising because firms face higher imported oil and energy costs and pass these on to customers, while consumer demand is flat. Which type of inflation is this?
This is cost-push inflation. Prices are rising because firms' input costs, here imported energy, have increased and are passed on to customers, even though consumer demand is flat. Demand-pull inflation would require rising demand beyond capacity, which is not the case in this scenario.
- ADemand-pull inflation
- BCost-push inflationCorrect
- CDeflation
- DHyperdeflation
Explanation
Price rises originating from higher input costs, such as imported energy, passed on by firms are cost-push inflation. Demand is flat, so demand-pull is wrong. Prices are rising, so it is not deflation.
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