Wage-price spiral

The phenomenon of wage-price spirals describes the cyclical process of wage and price increases that reinforce each other. The wage-price spiral can arise when rising wages lead to higher production costs and, thus, higher prices. These higher prices can lead to higher wage demands by workers to keep pace with increased inflation. Companies may try to offset the higher wage costs by raising prices – creating a vicious cycle. The wage-price spiral can ultimately lead to high inflation and unstable economic conditions.