Increase in cost of production:
Supply is the second major factor that affects the price of goods. People who support the theory of ‘supply-side economics’ believe that when the production cost increases the price of the good also increases.
If there is an increase in cost of raw material, machines, electricity, water rates, worker’s wages or transportation it will lead to increase in price of goods or services.
Inflation caused due to increase in production cost is called ‘Cost-push inflation’ or ‘Supply shock inflation’.