Cost push inflation is likely to arise when

Step 1: Analyze the question The question asks what situation leads to cost-push inflation.

Step 2: Explain the concept Inflation is a sustained rise in the general price level. There are two main types:

• Demand-pull inflation: "Too much money chasing too few goods." Total demand exceeds supply, which pushes prices up.
• Cost-push inflation: Producers' costs rise (wages, raw materials, fuel, rent, import prices), so they raise prices to protect their profits. Prices are pushed up from the supply side.

Step 3: Check each option

• A. Increase in bank lending: More credit means more money to spend, which raises demand. This causes demand-pull inflation, not cost-push.
• B. Increase in subsidies: Subsidies lower production costs or consumer prices, so they tend to reduce price pressure. This is not cost-push.
• C. Stock exchange: This is not a cause of cost-push inflation. It is only a capital market and is unrelated to production costs.
• D. Rise in the cost of production: This is the definition of cost-push inflation. For example, when petrol or diesel prices rise in Nigeria, transport and manufacturing costs rise, and the prices of goods and services follow.

Step 4: Answer The correct option is **D.

Exam tip: Match the name to the cause.

• Cost-push means costs go up, so prices are pushed up.
• Demand-pull means demand or money supply goes up, so prices are pulled up.

When you see "cost" in the question, look for an option about production costs, wages, or raw materials.