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Cost-push inflation arises from shocks that increase production costs. These shocks can be categorized into two main types: those affecting firms' pricing decisions, such as an increase in the price of imported raw materials like oil, and those enhancing workers' bargaining power. The latter can include an increase in unemployment benefits or stronger legislation protecting workers' rights, such as the right to strike.

Sources of Cost-Push Inflation

Based on the provided scenario, identify the specific economic shock causing the observed price increases and explain the mechanism through which it operates.

Analyzing Inflationary Pressures

A national government enacts new legislation that substantially increases the minimum wage and expands the collective bargaining rights of labor unions. Shortly after, the economy experiences a sustained increase in the overall price level. Which of the following best categorizes the source of this inflation?

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