Cost-Push Inflation

Cost-push inflation is a rise in the general price level driven by increases in the costs of production, such as wages, energy, and raw materials, rather than by excess demand. The classic example is the oil shock of 1973 to 1974, when crude prices roughly quadrupled and pushed costs through every energy-dependent industry in the developed world.

Why it matters

Cost-push episodes confront central banks with their worst dilemma: raising rates to fight inflation deepens the economic damage the supply shock already caused, while easing to support growth lets inflation entrench. The 1970s produced stagflation, inflation and stagnation together, precisely because policy accommodated successive shocks. Monetarists add a sharpening caveat: a one-time cost increase changes relative prices, and only sustained monetary expansion can turn it into ongoing inflation across everything at once.

In the gold vs bitcoin debate

The stagflationary 1970s remain gold's defining decade: freed from its 35 dollar peg in 1971, gold reached 850 dollars an ounce by January 1980 as savers fled a depreciating dollar. That episode anchors gold's inflation-hedge reputation to this day. Bitcoin has no comparable track record through a prolonged supply-shock inflation, having lived most of its life in a low-inflation era, and its behavior during the 2021 to 2022 surge, falling alongside other risk assets, left the question of its inflation-hedge credentials openly contested.