Cost-push inflation occurs when?

Cost-push inflation occurs when the overall price levels rise due to an increase in the cost of production, which affects the supply side of the economy. This situation can arise from rising costs of raw materials, wages, or other inputs required for the production of goods and services. When production costs increase, producers may raise their prices to maintain profit margins, leading to higher inflation levels.

In contrast, situations like a decrease in demand for goods would typically lead to lower prices rather than contributing to inflation. Similarly, an increase in consumer savings generally signals lower spending, which could exert downward pressure on prices. A decrease in government spending can also lead to reduced demand in the economy, further reinforcing the potential for lower price levels. Thus, the correct understanding of cost-push inflation centers around the aspect of rising production costs, making that the accurate choice.