We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Supply-Shock Inflation?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Commonly known as cost-push inflation, the basic concept of supply-shock inflation has to do with a considerable increase in the cost of goods and services that are considered to be essential and somewhat difficult to substitute. This is different from the concept of demand-pull inflation, where consumer demand would drive the rate of inflation. Often, supply-shock inflation involves a trickle down effect that will cause changes in many sectors of the marketplace. One of the best examples of this situation is the oil crisis in the early 1970’s, which led to the rise of gas prices in North America and other sections of the world.

Generally, supply-shock inflation triggers not only the increase in the price of the core product, but also other products that are closely associated. As in the case of the rise in the price of oil, the auto industry was effected by the inflation within the oil industry. This meant that the prices for automobiles began to increase. In addition, the cost for auto parts began to creep up, which in turn made it necessary for mechanics to charge more for their services in order to cover the increased cost of securing material to repair vehicles.

Not all economists subscribe to the idea that supply-shock inflation will automatically lead to higher prices for goods in a number of markets. While acknowledging the real impact of a rise in the price of an essential product on directly related products, some financial experts believe that the phenomenon that is identified as supply-shock inflation will be offset by changes in the purchase habits of some consumers.

As an example, rising costs in gasoline has led some consumers to use public transportation or utilize bicycles instead of automobiles for short errands or as a means of getting to and from work. This type of behavior modification helps to contain the level of inflation that occurs, rather than allowing the trend to continue unhampered.

Proponents of supply-shock inflation tend to be identified as supporters of the Keynesian school of economics. In relation to this type of inflation, Keynesians understand a modern economy as including prices that are classified as sticky downward or downward inflexible. In order to prevent or at least control a tendency to a recession, supply-shock inflation may function as one way of limiting the rate of unemployment and keeping the gross domestic product from falling. From this perspective, this phenomenon may be a tool to reverse adverse economic trends, and restore at least some sense of balance to the economy of a country.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By anon22843 — On Dec 11, 2008

What are the possible effects of increased inflation on an industry?

By mdt — On Mar 26, 2008

This is a difficult one to answer, given the richness and diversity of culture and government structures throughout Europe. Taking an extremely broad view, anything that governments can do to offset the additional cost incurred by consumers for these goods would be helpful - unless those measures also create problems in other industries and lead to work shortages. For example, tax breaks might be great, if they are not so severe that they lead to layoffs of government workers who need that steady income to make ends meet, or impact the ability of municipalities to continue providing public services.

Consumers, to the best of their ability, may want to adapt to the situation, using alternatives when possible. Bicycling for errands close to home is one way to stretch the budget for auto fuels. Considering less expensive alternatives to wheat as a source of bread may also help stretch the food budget.

By anon10247 — On Mar 23, 2008

In case with Eastern-Europen countries that experience inflation because of increase in oil and wheat prices what kind of monetary and fiscal policies should the Central Bank and the Government do on your opinion?

appreciate your answer!

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.