Final answer:
Persistent cost-push inflation can lead to high price levels, eroding purchasing power and potentially stagnating economic growth. Monetary policy may be utilized to combat entrenched inflation. High inflation can have significant political consequences and affect economies in the long term.
Step-by-step explanation:
If cost-push inflation persists, several consequences could unfold in an economy. Persistent inflation can erode purchasing power and lead to high price levels, which make everyday goods and services more expensive for consumers. When inflation rates exceed moderate levels, as seen with the 6% annualized rates in 2021 and 9.1% in the U.S. in 2022, there might be fears of long-term high inflation reminiscent of the 1970s and early 1980s.
Moreover, persistent inflation may warrant intervention through monetary policy to prevent it from becoming entrenched. High-income economies have both the political will and the economic tools, as demonstrated by actions such as the Inflation Reduction Act, to manage growing inflation. Furthermore, ongoing shortages in an economy might fuel the inflationary trend, as consumers rush to purchase goods in anticipation of further price increases, potentially leading to a self-fulfilling prophecy. In the long run, consistent high inflation can also stagnate economic growth and lead to significant political outcomes.