This is known as the cost-push theory.
The
increase in price usually happens due to the fact that the cost of producing
goods goes up yet demand remains the same. The factors causing the increase
in production cost could be expected or unexpected (could be due to more expensive
raw materials, government regulation, employee strikes or even demand for
higher wages). Nevertheless these costs must be met and it in order to
maintain profitability of the business, the end consumers end up shouldering
this extra cost in the form of higher prices which ultimately lead to
inflation.
