Which scenario is cost-push inflation?

• A. Lower taxes on producers
• B. Increase in raw material costs
• C. Strong currency appreciating
• D. Increase in consumer demand

Answer: (B)

Cost-push inflation happens when rising costs of producing goods push up prices, even if demand is unchanged. When raw material costs increase, producers face higher marginal costs. To maintain profits, they raise prices across the output, lifting the overall price level. That supply-side pressure is the hallmark of cost-push inflation.

The scenario with higher raw material costs fits this idea directly: it elevates production costs and prompts higher prices. The other scenarios don’t fit as cost-push causes. Lower taxes on producers reduce costs or increase supply, potentially easing inflation. A stronger currency makes imports cheaper, which can lower inflationary pressure. An increase in consumer demand raises prices via higher demand, which is demand-pull inflation, not due to rising production costs.