Wage-Price Spiral

The wage-price spiral is a phenomenon where rising wages lead to increased demand for goods and services, which in turn causes prices to rise. This cycle begins when workers receive higher wages, prompting them to spend more. Demand for products and services increases, and businesses face higher operating costs. These costs are passed down to consumers in the form of higher prices. The resulting inflation often leads workers to demand even higher wages to keep up with the cost of living, perpetuating the cycle.

Wage-Price Spirals are a classic example of cost-push inflation, where wage increases drive up overall business expenses, leading to further price hikes. For example, if the minimum wage increases, consumers spend more, leading to higher demand and prices, which can result in a continuous loop of wage and price increases until wage levels become unsustainable.