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BT Explains: What is cost-push inflation and how can governments address it?

THE US Federal Reserve's 75-basis-point hike last week - the largest interest rate increase since 1994 - aimed to curb soaring inflation, which has hit decade-highs in the US and the European Union.

Yet such hikes chiefly target demand-side inflationary pressures, while today's rising prices are fuelled by supply-side constraints.

The Business Times (BT) looks at the difference between demand-pull and cost-push inflation and the tools policymakers can use to contain it.

Demand-pull vs cost-push inflation

When prices rise due to fast growth in demand for goods and services, that is demand-pull inflation. This usually happens in tandem with overall economic growth.

Cost-push inflation occurs when the...

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