What is cost-push inflation primarily caused by?

Cost-push inflation occurs when the overall price level rises due to increases in the costs of production. This typically involves factors that drive up the prices of goods and services. When production costs increase—whether from higher prices for raw materials, wages, or other inputs—the producers are compelled to pass these costs onto consumers in the form of higher prices.

This phenomenon directly correlates with a rise in costs for businesses, which leads to reduced supply of goods in the market, as companies may scale back production due to squeezed profit margins. Ultimately, the result is inflation, as consumers face higher prices for the same selection of goods.

The other options, while related to economic activity, describe different mechanisms. Increased consumer demand usually leads to demand-pull inflation rather than cost-push. Natural disasters can disrupt production and supply chains but are not a direct cause of the cost of production itself. Similarly, a decreased labor supply may contribute to labor cost increases, but it does not encompass the broader range of production costs that define cost-push inflation. Therefore, higher production costs is the most accurate choice to identify the primary driver of cost-push inflation.