What leads to cost-push inflation?

Cost-push inflation occurs when the overall prices of goods and services rise due to increases in the costs of production. This can happen for a variety of reasons, such as an increase in the prices of raw materials, wages, or other input costs necessary for manufacturing goods. When production costs rise, businesses often pass these increased costs onto consumers in the form of higher prices, leading to inflation.

Increased consumer spending typically results in demand-pull inflation, where prices rise because more consumers are competing to buy goods and services. A decreased money supply generally leads to deflation rather than inflation, as there is less money available to spend in the economy. Enhanced competition amongst sellers can actually drive prices down, as businesses may lower prices to attract customers. Thus, the scenario that directly leads to cost-push inflation is the increased costs of production, making it the correct answer.