inflationary spiral


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Related to inflationary spiral: Inflationary gap

inflationary spiral

or

price-wage spiral

a self-sustained increase in the rate of INFLATION brought about by the interaction of rising final prices and rising input costs. For example, an initial sharp increase in the prices of goods and services caused by an increase in raw material costs can lead to a demand for higher MONEY WAGES by trade unions concerned to protect their members’ living standards. If conceded, higher wage costs are soon likely to prompt manufacturers to put up their prices in order to maintain profit margins. The higher prices in turn produce further demand for wage increases, and so on. Once under way, price-cost increases tend to be self-reinforcing and are exacerbated by EXPECTATIONS of even further increases (see ANTICIPATED INFLATION). See ADAPTIVE EXPECTATIONS, EXPECTATIONS-ADJUSTED/AUGMENTED PHILLIPS CURVE, MONEY ILLUSION, REAL WAGES.