Inflation of costs
Inflation of costs arises at growth of the entering price (expenses) for the goods. The enterprises, for production should acquire raw materials, a labour and energy. If the prices for them start to grow, it result ins to reduction of possibility of the enterprises to manufacture production because the production cost price increases. If increase of production costs is rather great and propagated, simultaneously there is higher inflation, real gross national product drops and the rate of unemployment raises.
In 1970 of the OPEC has reduced an oil recovery that has led much more to heavy prices for energy carriers along with two-place inflation and unemployment. Generators have faced higher working costs and have reduced the production. Concerning demand for their production, the offer has dropped, as has led to inflation of costs.
However inflation of costs has also a light party, this self-restriction. Inflations of costs closely related gross national product with reduction. Decrease in gross national product and result of a high level of unemployment helps to entail the prices of generators downwards. All focus that it is necessary to understand that inflation of costs it not demand pull. Political effect for each situation and application of wrong actions can create a miscellaneous of more problems, than decide. Also the problem of unemployment which routinely and induces politicians to actions here concerns.
If the government reacts to growth of unemployment by increase in costs inflation will increase. It also has occurred in 1970. Instead of inflation of costs has decreased as a result of its natural course, the Federal Reserve System has released a great sum of money, paternal there was only an inflation increase.