The term inflation spiral calls itself a propelling and extending development. It comes off if parties to a wage agreement a contract over a wage increase locks, that over the productivity increase of the enterprise.

Causes and consequences

Production costs of an enterprise are increased by higher wages, which follows fallings off in profits to would have. There however an enterprise under the obligation stands the credit taken up by them for raw materials to pay wages and investments back follows inevitably a price increase. A shifting of the higher labour costs on increased productivity is not possible, since the inflation spiral has the condition that the wage increase lies over the possible productivity increase.

In addition the increased income of the households leads to an increase of the consumption of the households, which corresponds to a increased demand, with remained the same or less strongly increased offer. Thus a price increase is the result.

A price increase corresponds however to an increase of the nominal gross domestic product, which leads because of the relationship to an inflation (demand inflation and cost inflation).

This inflation again is considered by the parties to a wage agreement with the next negotiations, the increase of wages must be thus still more highly than letzes times.

Diagram

The wage inflationary spiral can be represented thus as follows:

                                                                       _ Increase of wages}/\} Nachfragesteigerung <---- \} \ cost increase} \/|} \/|} 1. Phase \ fallings off in profits cost inflation} \ \ |} \ \ V} --Demand inflation--> price increase}/}/_} increase of wages} \} 2. Phase \}"…"…} 

See also

• Wage policy

Articles in category "Inflation spiral"

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