UK shop price inflation ‘highest since 2024’ as retailers struggle to limit price rises
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Cost-push inflation, Supply shocks, Supply, demand and prices
What happened
UK shop price inflation has reached its highest level in two and a half years, according to the British Retail Consortium, which warned that retailers are struggling to keep cost pressures away from consumers.
The economics
This illustrates cost-push inflation: retailers face rising costs, have been absorbing them, and are now starting to pass them on through higher prices, pushing shop price inflation up. Students can draw an AD-AS diagram with a leftward shift of the supply curve to show how higher costs raise the price level, or use a supply-and-demand diagram for retail prices.
Evaluation
However, high shop price inflation may partly reflect demand-side pressure too, so cost-push alone cannot explain everything; how much retailers can pass on depends on competition and consumer price sensitivity, and over time demand may weaken as prices rise.
Practice question
Using this example, explain how rising costs can cause cost-push inflation and evaluate the factors that affect retailers' ability to pass costs on to consumers.
Read the article ↗ · Draw the diagram in the Diagram Lab
Where it fits in the syllabus
- Cost-push inflation: Higher costs of production such as wages, energy or materials lead firms to raise prices.
- Supply shocks: A sudden change in supply, such as energy, food or supply-chain disruption, that moves prices and output.
- Supply, demand and prices: How a change in demand or supply in one market moves its equilibrium price and quantity.
- IB Economics: Aggregate Demand and Supply, Demand, Supply and Elasticity
- A-Level Economics: Macroeconomic Objectives, Aggregate Demand and Supply, Supply and Demand
- AP Macroeconomics: National Income and Price Determination
- AP Microeconomics: Supply, Demand and Market Equilibrium
- IGCSE Economics: Macroeconomic Objectives, Demand and Supply