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June/July 1981

Inflation: The Cost-Push Myth

by Dallas S. Batten

This article analyzes a frequently given cause of inflation—cost-push—within a monetary framework. The cost-push view of inflation is based on the notion that prices are set by the costs of production and that prices rise only when costs rise, regardless of demand. Inflation, in this framework, is the result of the sellers of productive inputs (including labor) persistently and unilaterally raising their selling prices, causing producers’ costs, and subsequently prices, to rise.