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Economics
Wage-Price Spiral
When workers demand higher wages because prices are rising, then businesses raise prices to cover the higher wages, and the cycle keeps going.
The spiral is why the Fed sometimes has to raise interest rates sharply to break the cycle. It hurts in the short run but stops the endless up-and-down of wages and prices.It's like two kids on a seesaw pushing harder and harder to go higher — neither one stops until the whole thing is out of control.
Real world: In the 1970s, oil shocks caused prices to rise, unions demanded big raises, companies raised prices again, and inflation stayed high for years.
💡 A wage-price spiral turns regular inflation into a runaway problem — that's why keeping inflation expectations low is so important.