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Cost-push inflation - Building projects hit by lack of supplies and price rises

Geoff Riley

26th May 2021

Here is a terrific example of factors that can cause an inward shift in short run aggregate supply (SRAS) for the British economy.

Production hold-ups in Scandinavia impacting on timber supplies and drops in chemicals and plastics production in Texas, allied to the rising cost of shipping raw materials around the globe are contributing to a steep rise in world prices for essential inputs into the construction industry.

As the world economy picks up after the worst of the pandemic, demand for construction projects is climbing and so too is the derived demand for the component parts needed.

This is one factor behind fears that supply-chain inflation might feed through into a more broadly-based increase in consumer prices at retail level.

Central banks are on the alert in case policy interest rates need to start rising again or quantitative easing might be tapered.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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