Definition of Wage-price spiral:
Alternative term for inflationary spiral.
The wage-price spiral is an economic term that describes the phenomenon of price increases as a result of higher wages. When workers receive a wage hike, they demand more goods and services and this, in turn, causes prices to rise. The wage increase effectively increases general business expenses that are passed on to the consumer in the form of higher prices. It is essentially a perpetual loop or cycle of consistent price increases. The wage-price spiral reflects the causes and consequences of inflation, and it is, therefore, characteristic of Keynesian economic theory. It is also known as the "cost-push" origin of inflation. Another cause of inflation is known as "demand-pull" inflation, which monetary theorists believe originates with the money supply.
The wage-price spiral is a macroeconomic theory used to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. The wage-price spiral suggests that rising wages increase disposable income raising the demand for goods and causing prices to rise. Rising prices increase demand for higher wages, which leads to higher production costs and further upward pressure on prices creating a conceptual spiral.
How to use Wage-price spiral in a sentence?
- Central banks use monetary, the interest rate, reserve requirements, or open market operations, to curb the wage-price spiral.
- Inflation targeting is a type of monetary policy that aims to achieve and sustain a set interest rate over a period.
- The Wage-price spiral describes a perpetual cycle whereby rising wages create rising prices and vice versa.
Meaning of Wage-price spiral & Wage-price spiral Definition