How changes in world commodity prices affect domestic inflation
When the global price of raw materials like oil or wheat rises, UK firms face higher production costs. Those firms pass the extra costs on to consumers, pushing up the general price level.
Real World
When OPEC+ cut oil production in 2022, Brent crude prices spiked above $100 per barrel; UK petrol prices hit record highs within weeks, directly raising transport and distribution costs across virtually every industry.
Exam Focus
Link commodity price rises to cost-push inflation explicitly using the SRAS curve shifting left — diagrams without verbal explanation rarely score full marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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