Cost Push Inflation Example
                     Cost Push Inflation Example
Inflation is one of the most common phenomena in economics. Economists are 
able to predict inflation by seeing the trends; however, there are times when the 
prices of certain commodities are increased unexpectedly, resulting in cost-push 
inflation.

What is Cost-Push Inflation?
It is a form of inflation that occurs when the prices of resources are increased, 
meaning the companies are receiving less raw material for the same price. 
Companies cannot afford to increase their production rate to meet the demand, 
therefore, to keep the product at a relatively the same price, the production is 
scaled back. Unsurprisingly, this leads to a shortage of goods and services, 
resulting in price hikes and causing inflation. Hence the name cost-push inflation, 
i,e., when the cost of production increases, the prices are pushed as well.
Cost-push Inflation Examples in History
1. American Oil Crisis
The United States was built with and for oil, from boilers that heated the homes to 
the American gas-guzzling automobiles, each aspect of this nation relied on oil. In 
the early 20th century, the United States primarily relied on natural gas, crude oil, 
and other energy sources that were readily available within the nation; however, 
since the 1920s, there was a 5 percent increase in energy demand each year. 
Unsurprisingly, the local energy sources were unable to keep up with this demand, 
and it led to the US increasing its import of oil from the middle east. Although oil 
was imported from other nations before as well, it was not to the same extent. 
Despite the United States relying on other nations for oil, everything was going 
smoothly, until the 1970s oil crisis. The Organization of Petroleum Exporting 
Countries (OPEC), which regulated the majority of the world’s oil reserves, slowed 
its production significantly.
This meant the export of oil to other nations was brought almost to a halt. The United 
States was affected the most by this embargo. Once a prosperous nation, it was 
brought to its knees. Each sector that relied on oil for production raised the prices of its 
products and services. Companies, specifically, automobile manufacturers like General 
Motors and Ford, cut their production by 80,000 units. Moreover, to continue making 
profits, companies reduced their workforce by half as well. This is perhaps one of the 
prime examples of cost-push inflation, in which the increased cost of oil pushed up the 
prices of other products exponentially.
2. Mexican Corn Shortage
The political tension between the United States and Mexico was an ongoing 
issue for many years. Fortunately, in the 20th century, the relations between the 
two countries became better, and finally, in 1994, The North American Free 
Trade Agreement, eased restrictions on its trade policies. This meant Mexico 
became heavily reliant on the United States for its corn. Previously, Mexico used 
to grow the majority of its corn; however, after the ease of the trade restrictions, it 
went from importing 8 percent of corn to 33 percent. Similar to the United States 
oil crisis, things were about to change in Mexico. In 2007, the government of the 
United States subsidized corn production for the production of ethanol. This meant 
that a large chunk of corn production was used to make ethanol. Despite the 
production rate of corn increasing in the United States, the supply to Mexico was 
heavily limited. It increased the prices of corn tortillas, an everyday food item of 
Mexican cuisine, by 60 percent. The situation became so dire that there were riots, 
and the government had to introduce new policies to calm the public down. While 
Mexico was affected by this the most, people in the United States that relied on 
corn also felt the impact of this cost-push inflation.
3. KFC Chicken Crisis
Kentucky Fried Chicken, as the name suggests, sells fried chicken. This is their 
primary business model, therefore, having a shortage of chicken means a complete 
shutdown of the business. This is what happened in 2018 in KFC in the United 
Kingdom. As businesses are always trying to come up with ways to cut down their 
expenses, KFC UK decided to work with a new logistic partner in 2018. DHL was 
decided as the new business partner for KFC UK. Unfortunately, there was a 
massive delay in the shipment, resulting in 600 out of 900 restaurants being shut 
down in the country. Although this did not affect the country, the inflation rate for KFC 
UK was doubled.
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