This article is a clear real-world example of cost-push inflation, where rising production costs force firms to increase prices. In the UK, soaring food prices were the biggest contributor to inflation reaching 10.1%, driven by higher energy costs, transport expenses, and rising prices of raw materials. Businesses had little choice but to pass these higher costs on to consumers, even though household incomes were not rising at the same pace.
The article also highlights how the modern globalised economy has increased interdependence between countries. Events taking place thousands of miles away — such as the war in Ukraine — disrupted global supplies of wheat, sunflower oil, gas, and cooking oil. Because the UK relies heavily on imports for food and energy, these supply-side shocks directly affected domestic prices and living standards. This shows how economic shocks in one part of the world can significantly influence inflation and consumer welfare elsewhere.
From a macroeconomic perspective, the UK appears to be facing stagflation, where high inflation exists alongside weak economic growth and falling real incomes. Prices are rising rapidly while wages fail to keep up, reducing purchasing power and increasing the cost-of-living crisis. At the same time, attempts to control inflation through tighter monetary policy risk slowing growth further and increasing unemployment.
Overall, this article demonstrates why cost-push inflation is particularly difficult for policymakers to manage. Unlike demand-pull inflation, it cannot be easily solved by reducing demand, as the root causes lie in rising costs and global supply disruptions. This makes it a strong example for evaluating inflation, globalisation, and policy trade-offs in A-Level Economi
Source: BBC News
Date: 17 August 2022
https://www.google.com/amp/s/www.bbc.com/news/business-62562025.amp
