inflationary spiral

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inflationary spiral


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.
References in periodicals archive ?
Tight monetary conditions are expected to prevent a price-wage spiral due to the hike in the price level by 1 1/2 percentage points resulting from the introduction of a value-added tax in 1995.
In any case, with accelerating inflation and the risk of a price-wage spiral, a relaxation of monetary policy would be inappropriate.
The growing labour-market slack should prevent the short-run effects on the price level of indirect tax increases and higher import prices from becoming entrenched in a price-wage spiral.
Against the background of uncertainties about the size of a possibly remaining monetary overhang, the difficulties of interpreting underlying inflation in the face of indirect tax increases and the heightened risk of an emerging price-wage spiral may put upward pressure on short-term interest rates in 1991, and leave little room for a decline in 1992.

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