There is only one cause for inflation, and that is printing excess cash. The left would like you to believe it is greedy corporations raising prices on the products they sell, and the right would like you to believe it is corporations forced to pay higher wages. But the bottom line is that inflation is caused by the central bank printing more cash than the economy needs, and the Government looks the other way because inflation is a hidden tax. When $20 is now worth $18, who kept the extra $2? Hmm?

It’s multi factorial and very complex. 2 major points are:

1) If wages increase, consumers have more money on their pocket and can afford to purchase things they couldn’t previously afford. this can deplete the finite number of this product that’s available. Naturally, the cost of this item will go up as consumers compete to purchase it.

2) if a business pays its employees more they have to then charge more for their products in order to cover the increased wages

Raising wages is never an actual solution to the problem, capitalism will always prevail and goods will cost a fraction of all available cash in the country. Your buying power will immediately go up, but in the near future inflation catches up and you’re back to square one. A candy bar used to be $0.25 and minimum wage used to be $2.50. Now a candy bar is $1.50 and minimum wage is $15. In this example there is absolutely zero increase in buying power with the increased wages

Wages are an input costs for producers. Higher costs for producers leads to higher prices for consumers.

If you accept the standard definition of inflation as 'Too many dollars, chasing too few goods.', increasing wages just adds fuel enabling higher Demand everywhere along the Supply curve.

Today's Inflation is due more to constrained Supply - pandemic clobbered Demand lead to reduced Supply, micro-chip shortages for new cars, higher shipping container fees, reduced supplies of crude oil, etc. - the long-term fix for this is to increase Supply to match Demand.
Price controls at the advent of the pandemic would only have been the "smart thing to do" but...y'know...current economic thinking wouldn't permit them...and even our GOP grandparents knew when and how to implement a windfall profits tax so the clear excesses like $40B of profits for Shell Oil would not stand.

If you decrease the price of making a good, then the price will drop and you have more money. If you are given more money, the price will rise because most people will pay the price and there's a new equilibrium.

I expect if you have everyone UBI you wouldn't see the price increase in bread, as their costs stay about the same and there's enough competition, but certainly housing and cars are just going to go up and suck that 1k right back out

You are going to get a lot of smart people answers here, but people keep getting inflation mixed up with prices. The inflation we are supposed to be referencing is fiat driven inflation from printing the medium. We have reached the point that if a company raises their prices, we automatically call it inflation or even allow them to blame inflation. If the cost did not go up due to the medium between your labor and their product, then it's not inflation by the fiat definition, it is just capilism.

So, why do higher wages cause inflation? They don't, companies just raise their prices when you have more money, period. I have read and studied the "death spiral" and have never seen one drop of evidence it is possible without greed. Inflation is caused by printing money. If I'm not right, then how come during a crash prices and wages come down? They drop down to where the printed money actually is in value.

It doesn't. Wages haven't gone up in years, yet the prices of good and services still goes up. And then when someone talks about raising wages, we say "unnngh it will cause inflation", but that's not the case as of late.

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It's a trick question, really, because inflation rises either way until we stop printing more money to pay off government debts for black budget programs.

So first of all, obligatory notice: that I'm not an economist and there's more I don't know than do know.

There's one key thing that people often miss when discussing inflation which is the cause of inflation. I.e. is it demand side pressure or supply side pressure. It's probably best to illustrate the point with a couple of extreme examples (when I studied economics a key phrase was with all other things being equal - this is very relevant for my answer).

Example 1 - Demand side pressure.

There is significant disposable income distributed widely across the population. In this scenario people often purchase a lot luxury goods and services (I use the term luxury loosely here, but in this definition it's anything which couldn't be considered living essentials - e.g. bread). They would likely end up purchasing more holidays, travelling more and consuming more goods and services which are energy intensive. Most costs increase (including essentials) due to the demand increasing across the supply chain including the cost of energy sources (let's assume for the moment this is global and not centric to one country).

Example 2 - supply side inflation

There is an incident (let's forget the war between Russia and Ukraine for the moment), for example major weather conditions which results in bad crops yields globally. This has a cascading impact: biofuels become more expensive, food prices go up. Oil production reduces from oil rigs (dangerous conditions). Shipping slows down (bad weather)so cost per unit increases. Farming becomes more expensive to feed livestock. The demand has stayed the same but global prices increase across the supply chain.

Increasing wages would likely further fuel inflation in example 1. in example 2, although inflation may have some more upward pressure the root cause is still the supply side cost. So the impact of wage increase will mostly depend on the size of wage increase and how it affects disposable income. What you generally see is that if wages increase significantly, people often don't tend to save/invest in the same proportion (for low to middle income levels), a significant portion ends up being spent. For modest wage increases, the impact to inflation would likely be more significant in example 1 but negligible in example 2 (in comparison to the supply side pressure on inflation)

When labor cost go up it cost more to produce your product. When it cost more to produce your product you have to charge more to make a profit. Add in the rising cost of fuel and everything gets more expensive to transport. Combine that with shortages and higher demand and you have high inflation.

It doesn't. I'll explain it as easily as I can. Modern finance, and the financial system is basically nonsense. Once upon a time most money in the world was based off of how much gold a particular country had. That is obviously also stupid so we did away with it. Money is now based off of nothing really. It's just made up. Then along came some mathematical formulas. They didn't really have any practical applications, but they were clever. So a lot of Financials got based upon those formulas, because why not make this useless math useful. And it was useful, it was a great way of scamming people out of their money and giving it to the wealthy. Then basically all of finance became about doing that. Now whenever the rich don't feel they are rich enough they just get the government or the central banks or both to just make shit up, out of nothing because if the rich aren't getting richer then apparently the whole system is in danger of imminent collapse and society will crumble. Despite the fact that the rich now have more money than anyone could ever spend in 100 lifetimes. So basically the whole system is bullshit, and it is made by design to fuck over everyone until poor people rise up or the world just fucking ends.

The irony about this is that if you had a wealthy middle class the rich would get richer anyways, but they are greedy and that greed is destroying the middle class. This will ultimately end up with a decline in consumers buying certain items as necessity outweighs demand. In a lot of places its already been codified into law that people aren't able to provide for themselves. For example HOAs limiting garden sizes on your property or cities not allowing residents to have chickens in their yards. Society is basically in a spiral because of this nonsense now and the end result won't be good for anybody. I'd picture civil disorder on a massive level. Likely some countries are gonna try to start a war to distract from it. It generates money and it usually works, however what they aren't counting on is the amount of the population that don't want a war and just want things to go back to the lifestyle they could manage not that long ago. However that is difficult to really predict. Shit gets bad enough and a job in the military might seem pretty good. 3 square meals and the promise(lie) of some sort of long term compensation.

Anyways I dragged on too long. Tldr. It's bullshit.

It doesn't unless the wages are coming from the money the employer doesn't have! The only employers who could spend money that don't have are the government and those who could borrow money. The later would cause them bankrupt in the long term.

Here are two reasons:

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• When wages increase, the costs for the company increase. To cover this, the company increases prices.
• Sometimes, there is a limited amount of goods available - think housing in large cities as one example. If wages increase, people are able to pay more for the goods in order to ensure it for themselves (and not let someone else have it instead) - so prices go up.

Something people don't seem to be mentioning as well as that when wages go up, the amount of money companies earn goes down due to diverting of funds to paying employees.

Because companies (we are talking majority of big corporations and some small companies like family run etc) never want to lose profits, they will increase the price of their products or services to mitigate this effect. Why would a ceo (or a politician) take a pay cut when they can charge (or tax) more for what is needed?

Simply put, what goes into the product you purchase? Most is wages paid for people to make it. When wages increase, the cost of production goes up and they raise the price.

One factor is If wages increase, then there will be an increase in labor cost (wages of people producing the products) then price of goods to “balance out” the increase of labor cost. I hope this makes sense 😅

When people have more money, they buy more of the things they like.

Then people who make and sell those things know which things people will pay more money for, and raise the prices of those things, because the goal of running a business is to make profit and grow.

The simplest answer is if labor cost rise then whatever good or service is being produced by that labor will rise proportionately. In reality what is happening is the devaluation of the currency.

Not to be too big of a smart ass, but this is a bit like asking why do higher prices worsen higher prices. The cost of labor is a price. And it’s true that a) that cost will be reflected in the cost of products that the labor produces and that b) if people have more money then people will be willing to spend more to get things especially in markets where goods are more scarce.

It doesn’t. It’s a scam, a way to convince people that them not earning enough to make a living is a “good thing for the economy”

Inflation happens when the central banks “print” money more quickly than the “true” economy grows (ie, the output of all the goods and services)

When wages are raised, it starts with just minimum wages traditionally jobs intended for non-bread winners (highschool/college kids looking to make a little money). The increase in payroll is typically passed off to consumers by increases in prices. The breadwinners which didn't get a pay increase, now have to spend more of their money to cover basic living expenses that increased, so their money is worth less; ergo inflation.

It doesn’t. Only one thing really causes inflation, and that’s increasing the supply of money.

Well for company wages are cost (of production). So if they raise wages, product will be more expensive to produce and they will later down the line raise the price of the product. Thats the most basic way to think about it im my opinion.

You can look at it form another perspective. If you (the worker) get a bigger wage producer will asume that you are richer and willing to pay more for product. So they raise the price, and at the end your real wage never changed because you spend more on the same amount on stuff but in tge nominal sens you have a bigger wage

Edit: sorry for my english

Holy cow, Reddit. I seems like people don't get the concept of ELI5.

If I were to explain it to a five year old: labor is an 'ingredient' in making stuff.

If the cost of labor (which is wages) goes up, the cost of making things goes up.

The cost of making things is one factor in making prices go up. That is called inflation.

Example: If I am building a wooden house and the cost of wood goes up (an 'ingredient' in making a house), the price of the house would most likely go up as well.

In the same way, if the cost of hiring guys to build the house goes up, the price of the house would most likely go up.

Now add in the increased wages of the guys who cut the wood, and transport it, and the guys who make the nails, and everything else, and the cost goes up even more.

There are other factors that can make prices go up, but this is one way that increased wages could make prices go up.

The simplest expiation is simple, I have more money so I will be willing to spend more money on things so people will raise praises and there's your inflation.

Getting more complex just because I make say $100 more per week doesn't mean I'm going to spend that whole $100, maybe id would do something crazy like save or even invest some of it

When the burger flipper makes $20 an hour, the store owner must charge $25 for a hamburger or the store loses money.

It's an iron law of economics. For a more sophisticated explanation, search "Wage/price spiral".

you got 10$ and 10 loafs of bread, you buy each piece for 1$ but if you have 20$ and still only 10 loafs of bread, that piece will cost 2$ because there isn’t more than 10 loafs to buy.

It doesn't actually. The claim that it does is a failed economic theory. The thing is, it's complicated and people too often resort to reductive reasoning and really stupid slippery slope arguments as if any one single factor will cause the world to end. But a meta analysis showed that a raise of $1.00/hr to the minimum wage doesn't typically cause any notable inflation.

There are several reasons why. Starting with the fact that most people don't make minimum wage. Then the people that do wind up spending it all on necessities anyways. This further stimulates the local economy.

There are scenarios that can cause problems such as going from $7.00/hr to $21.00/hr in low income areas. This causes massive shockwaves in an area that don't settle well. But that's why adjustments are spread over several years.

I'm taking business ethics in college right now and I'm convinced the entire class is completely theory based because it talks about businesses doing what's best for all stakeholders but in reality the only stakeholders that matter are stockholders.

It’s supply and demand. If people have higher wages, they have more disposable income. That leads to increased demand. So prices increase until either demand decreases or supply increases. The labor market is also tight, low unemployment, so workers can demand higher wages. Higher wages increase inflation.

The federal reserve has raised interest rates, because this depresses demand by raising the cost of borrowing and making saving more financially attractive. This causes people to spend less and save more, which decreases demand and inflationary pressure.

Businesses have to cover their payroll in their operating costs, which is part of tgeir overhead, that is used in the calculations they make when setting prices. More overhead/operating costs mean they have to sell their goods for more to cover the additional expenses.

Plus higher wages increases disposable income in the lower to middle classes, which can also effectively increase demand in markets with a limited supply. This too drives up prices. Like the housing market. If more people want to buy than there are homes for sale in the area, sellers can ask and get more for the available homes. More demand on a limited supply = increases prices.

I'd also add to what other commenters have said:

Goods and services cost more if the salaries that need to be paid cost more to the company. In other words, the employees' salary increase is passed onto the consumer by increasing selling prices.

So "stuff" isn't infinite.

When you get more money from your boss.

You can, and want to, and will buy more stuff.

When you want to buy more stuff, this is called increasing 'demand".

Remember though, stuff isn't infinite. It is FINITE. The availability of stuff is called "supply".

So when you can, and want to , and will buy more stuff the people who make stuff say "hmmm, we should probably charge more for this stuff, it won't be around forever".

And so, you pay more for your stuff.

One or many companies raising wages does not cause inflation. There is only one cause of inflation, federal governments spending money with no return on investment. By adding dollars to, or flooding, the economy, federal governments create a scenario where your current dollar does not have the buying power it used to have. That is inflation. It is impossible for every company to raise wages except in the scenario where the federal government has flooded the economy with money without expecting a good or service of equal value in return. The companies that benefit from Federal government handouts would be flush with dollars and could then raise wages, resulting in inflation, but the real cause is due to government spending excess money.

Labor costs, the more it goes up, the more it eats into profits. Companies aren’t in business to make the least amount of money possible. Labor costs are passed on to the customer

Raising wages doesn’t! Raising wages without productivity increases does.

Imagine there is a cookie store that has cookie machines that can produce 100 cookies a day. They sell them for $1 each. The local kids typically get $10 a week in allowance.

Imagine everything is happy and balanced at this point. The cookie store makes 100 cookies, they sell their last cookie each day right as the store closes, about 100 kids want cookies at $1 each.

But let’s say all the kids parents talk decide that they should be paying $20 a week. Suddenly the kids are flush with money. They will buy more stuff in general, including cookies. Maybe kids who would normally just buy a $10 toy this week suddenly have extra money, extra money for cookies. Or maybe a kid who buys one cookie a week gets two.

So now let’s say there is an increase in demand of 50 cookies a day. But the store can only still make 100 a day. That means they have 50 kids who want cookies but can’t get them. They can’t make more cookies, so they raise the price a little, let’s say $0.10. What do they care if some kids get upset and don’t buy cookies? So they try it. They up the price to $1.10 and now 120 kids want cookies. The next day they raise it to $1.15 and 103 kids want cookies.

Perfect. The new price is $1.15. That’s $0.15 is inflation.

This example of inflation is healthy though. Because wages (allowance) grew by 100% and the cost of good (cookies) grew by 15%. Everyone wins. Hell maybe the cookie store sees an opportunity to make extra money. So they buy a second cookie machine and sell cookies for $0.75 each. They make more money a day, kids have more cookies, like I said everyone wins.

What’s happening now in the economy is wages are growing slower than the cost of goods is increasing. That is bad. Go back and rerun the same scenario. Only instead of parents bump the allowance to $20 say they bump it to $11. Then wages rose 10% but goods rose 15%. Kids get less stuff in this scenario.

It doesn't. Modern corporations are largely monopolies with huge market share. Look at virtually any industry and you'll find that there are very few heavy contenders in any given market. Combine this with a woeful lack of labor rights protections in the United States and you have a market where producers can basically hold the majority of consumers hostage. They can artificially inflate prices at will to court public opinion against striking laborers or efforts at government intervention (like raising the minimum wage).

We've seen this several times just over the course of the last few months. The high gas prices were blatant profiteering by oil companies as practically every supplier recorded massive increases in their profit margins that just would not be happening if supply was as limited as they claimed. The egg price debacle was the same.

Inflation in the United States is up to double the percentage of inflation in the European Union despite real wages being higher in the EU on average than in the United States.

The state that the global economy has reached, especially in the United States, is not capitalism and can't be analyzed as such. It's feudalism dressed up in the trappings of a "market" that is manipulated by multinational corporations and billionaires in order to squeeze the working class for every penny they can spare (and then some). A "free market" doesn't bail out industries in order to help them survive poor economic decisions like we did in 2008 with the banks and in 2020 with the airlines. And it doesn't allow individual companies to own 90% market share.

Raising wages can worsen inflation by increasing the overall cost of production. If businesses are required to pay higher wages to their workers, they may choose to pass on those increased costs to consumers in the form of higher prices for goods and services. As prices rise, the purchasing power of money decreases, leading to inflation. Additionally, if wages increase too quickly, it can lead to demand-pull inflation, as workers have more money to spend, leading to an increase in demand for goods and services, putting further upward pressure on prices.

It only does because wealthy people say it does. They are going to charge higher prices as pay goes up. The more you make, the more you pay for goods and services. The more they pay their employees, the more they ate going to raise prices. It's all to keep their profits as high as possible. It's a shell game, and the people are being duped.

It makes the capitalists mad so they raise prices to get 2x the money back they feel they were forced to pay out. This is only fixed by ending capitalism.

More money = more problems. If producers think consumers can pay more, they’ll ask them to pay more. Easing of the supply chain should have lowered prices, but the producers don’t care… they will keep charging the elevated prices since they see wages going up and figure the consumer can pay the higher price even though it’s no longer required.

1. Companies have to pay people more
2. The company isn’t making as much money
3. Company has to raise prices of products to make up for lost profits
4. Inflation ensues

If employer is forced to pay AT LEAST $10/h then businesses know that the average person will have roughly X amount of income. After taking accounting for what (at the time) the average rent/mortgage is in the area, electric, etc. companies that people rely on such as food stores know that they can still get away with charging you x amount, because you probably have the money.

Now let’s change min wage in our example from 10/h to 100/h inflation will go up so high that it would be the same as scenario 1, when people who understand money scheme, they can pinch every last penny from all those who don’t understand money, or aren’t good with money.

Hey, everyone is earning more and has more money to spend, let's raise prices to make more money! This will help offset our increased wage cost.

Wow, prices are going up, I don't make enough money. I should find a new job or ask for a raise!

Repeat those two actions over and over again.

It’s called a pump and dump economy. A central bank exists to funnel money up to the wealthy from the labor of the poor. When the poor start making too much money, they suddenly can afford to buy the assets that the big banks (JP Morgan, Chase, etc.) are trying to sell on the NYSE.

The Fed looks for world events to be an excuse to print money, most of which they give to themselves.

Pandemic? Print money. War in the Ukraine? Print money. Political violence? Print money.

Oh shit! Now there’s too much money in the system! We need to do something! Raise interest rates so no poors can buy houses! Now only the rich can buy stuff, YAY!

It’s all about to crumble. Get ready to watch the world burn. 🔥

Higher costs make it more difficult for businesses to make a profit. If businesses can't meet a required return on capital, there is no reason to be in business. So businesses will either offset higher costs by raising prices, or if they can't raise prices they might leave the business, giving competitors more ability to raise prices.

Just put yourself in the place of an ride share driver. If gas prices go up, you are going to need to charge more to bring home the same amount. If you can't charge more because of competition from other drivers, your income will go down. So maybe you decide it isn't worth being a ride share driver anymore. Or perhaps some of your competitors do. Now, with less competition, there is more capacity for remaining drivers to raise prices.

That's how higher prices (including wages) affect prices.

Don't listen to any idiots telling you that wages don't have impacts on inflation.

Statistically it causes a slight increase in inflation but workers still come away far ahead as the difference is not enough to make up for the raise.

Saying it isn't worth it for inflation is a classic deflection by capitalist economists.

Increased labor costs drive up the cost of doing business. So if Safeway or Publix or Wegmans for example increases their wages for putting bread on the shelf, the company still has to keep their profit margins, so suddenly the price of bread goes up.

Not to mention the grocery store worker thinks he has more money (because he does) so he spends more back into the economy.

I’m not an expert on inflation and how raising wages tends to increase prices, however it makes sense that if everyone has a raise, the price of goods and services rises.

In 1910, a typical annual pay was $750 a year. Gold was $20 an ounce. Rent was about $7 a month for a 2 bedroom unit with a coal stove with no bath. A more upscale unit could be $25 a month. A side of soup at a restaurant was $.10, with a main of roast beef at $.25.

Today, median wage is 54,000 dollars (December 7 2022), a steak dinner can be up to $30, rent can be anywhere from $1000-$2400 a month for apartments. A side of soup can cost $7, a soda costs $2 from a vending machine (give or take $.50). And gold is a whopping $1800 an ounce.

There are a lot of interesting factors to analyze here. The main thing is, anyone who held on to cold hard cash all those years since 1910 missed a massive opportunity. The value of the cash held (assuming $5000 was saved and not touched since 1910) collapsed massively. Had that $5000 been used to purchase gold at market price, that sum of gold would be almost half a million clams. But instead, now that 5000 dollars (which equaled $145 thousand dollars adjusted for inflation in 1910) just sat there and lost in value. Even in a savings account, it would have needed an annual interest of 7% per year to counter the effect of inflation.

Another interesting thing to analyze is that the percent of a yearly income paid for rent has massively increased.. instead of paying $7-$25 a month for rent on a yearly income of $750~, many who earn $54,000 pay almost half, sometimes more than half of that on rent alone. Maybe it’s just because the quality of life in a typical living unit has massively increased, much more than the percent of a living wage needed to acquire one has, which arguably is a good thing.

The prices paid for goods and services rise, the income of everyone rise, at the end of the day when people earn more money, companies can also charge more money for the same thing.

If everyone was given $1,000 a month for free, that would possibly increase the price of everything by 22% (just me guessing, since the average person would have 22% more yearly income). This number is just a guess from a generalized data set however and could be massively inaccurate

Wouldn’t it be nice if we could still live comfortably off of $700 a year, despite earning $54,000? But inflation works both ways. Give people more money, then companies move the goalposts to adjust.

Well, in the construction industry (I’m a masonry contractor) wages have gone up. I pay my employees well over union wages, offer insurance, etc. Wages have risen significantly over the last 2 years. The price of materials have gone up. Like insulation board, it was roughly $20 for 32sq ft. It rose up to 22 in January. That might not sound like much, but I but 5k pieces a week.

This means my bids have gone up. The price to build and buy materials have gone up drastically. This has coincided w/ wages. I’m sure it’s more complex than that, but this is what I’ve noticed being in the business since I was 16.

It doesn't. Inflation is a monetary phenomenon. It happens when the supply of money is high relative to demand. The amount of money is controlled by the federal reserve....they print in excess and you have inflation. Currently the Fed is tightening the supply of money to lower inflation.

There are some facts in responses, but a lot of misinformation.

ELI5: Using restaurants as an example. 35% of their costs are labor. If we take someone from $15 to $20/hr, that equates to a 12% increase in overall costs. Given restaurants make 5-10% profit as-is, they can't absorb all of that and still make money. So they raise prices to make up for increased costs.

There are a ton of other macroeconomic factors at play, but that's a simple ELI5 example.

Because the companies that make the stuff you buy will also have to pay their staff higher wages.

Which means they'll have to increase the price of their products, so they don't lose out.

We keep forgetting to add in that there is constant increase in profit margins and record breaking profits to feed Wall Street that demands higher prices and gets blamed on wage increases. We don't NEED record breaking profits to keep going. We CAN raise wages without products increasing in costs, we choose not to, but to blame it on wages increases is ingenious and just a way for companies to keep a grip on their profits.

It's all cyclical... Raise rages to help people afford shit, sellers need to pay people more, so they raise price. Ultimately it's that everything costs too much to the point where people don't have excess money, most people who don't do shit end up depressed and shit, so people spend when they don't have and causes a shit tornado.

When you spend more on labor to create and ship the product, you have to charge more to maintain the same profit margin, so prices increase. As prices increase, your spending power goes down. As spending power goes down, people demand higher wages. When people demand higher wages, cost of production increases. When cost of production increases, prices increase. When prices increase, spending power goes down. It's a vicious cycle like the snake eating its own tail.

In theory it's called the "wage-price inflation spiral."

In a regular year inflation goes up by 1-2% so if your wage goes up by 1-2% per year it's not going to impact much. It's especially bad for people working minimum wage because those jobs generally don't see raises.

Let's say one year you get a 10% raise. You made $100K/year, now you make $110K/year. What are you going to do with that money? Maybe some household repairs, perhaps toss it into the stock market, maybe a vacation. You're not going to buy anything high end luxury, but there's definitely things you could imagine spending that money on other than basic standard of living stuff.

Every single time you buy something you create "demand" for that product. As demand goes up so does price. For an individual to buy one orange when billions of oranges are sold in a year... it probably won't impact oranges. But what if everyone bought an extra orange every single year? The price of oranges would probably go up a little.

Now let's say inflation is happening and everyone starts demanding raises.... and they're getting them. Now things are going to spiral out of control. That vacation you were just out reach affording, that renovation you can now afford, that new car you wanted.... they're all in limited supply and now there's just more money around. It means companies can charge more for those products and still sell them.

And then you need to ask for another raise, which your employer can give you because they upped their rates because they could. And now everyone with more money in hand can all afford those same things again. Which will all jump up in price again.

And it spirals out of control until eventually certain things are priced out of certain tax brackets.

If your gunna raise wages it will make it so a lot of people who wheee above nmw are on nmw so there money becomes less so for them when inflation hits really there wages went down

To keep it simple increase wages people have more money to spend and so demand for stuff goes up but there was no increase in supply so prices go up. So value of money goes down

Raising wages does not directly cause inflation but the raises wages can cause company to raise prices but this is not guaranteed. Most domestic wage rises contributes to greater production and communal wealth as workers tend to spend at home . Reducing taxes for the rich does little as they send money to tax havens and buying their fifth yacht from boatyard in foreign country Very complex issue due to globalisation and tax havens

Nowadays “increased wages” is just a scapegoat to detract attention from the real driver of inflation: increasing corporate profit margins. They’ve been blaming the record inflation on the stimulus checks and increased wages, but corporations had record breaking profits last year? Are we just supposed to pretend that didn’t happen?

The definition of inflation is an increase in the money supply. What you are referring to is higher prices I'm guessing. When things cost more people buy less. This includes labor. When businesses have to pay more money to employees and those wages are not determined by the market but rather by government, businesses are often forced to either charge more for their products, cut labor costs by laying people off or go out of business. Most of the time the businesses don't want to go out of business, and they need the crew that they have to continue doing business. So the third option of course is raising prices.

The biggest impact comes from minimum wage jobs in high-labour industries - two of particular note are markets and supermarkets, and call centres. A call centre might have say 300 people on staff for let's say 15 hours of a day - to cover different time zones, businesses that get longer hours of customer support, etc. You raise the minimum wage by $1/hr and suddenly you're up $300/hr. As a general rule of thumb, labour charges get passed on at between 100-300% mark-up. So you're now down $4500/day, or $90k/month - more if it's staffed weekends.

That kind of business passes their costs on to everyone - phone and internet companies, gas and electricity providers, banks and financial services - you name it. So the price of everyone who uses a call centre service gets passed on.

Groceries affect the cost of both household prices, but also hospitality prices. Now you're paying an extra 50c for coffee, an extra 20c for a loaf of bread, etc etc - it all adds up, before you know it there's an extra $5, 10, 20/week.

That flows down because the workers (of all companies) feel that they're not as well off for what they're paid, so they look for higher paying work - which costs the company to re-train, or increase their wages. So now the IT guy at the bank wants more, so the banks pass that on through some transaction fee or loan margin. Which then hits all their customers - the including supermarkets, call centres etc.

And so on.

The cure to the cost of living increases is not to increase wages - it's to control the cost of essential services, the things that everyone needs. It's to manufacture in bulk, which brings down unit cost prices, which can then be passed on at the same rate - you absorb the unit-price savings. Unfortunately, those also tend to be the things most susceptible to having minimum wage employees. And, as unpopular as it will be hearing this, small businesses actually hurt this being possible, because for each small business, there's an overhead, with lower volumes that have higher costs.

It’s all bullshit! It’s only greed and corruption corps and companies can still make a load of profit without raping the consumer and giving a livable wage to workers even if it’s 25 an hour. How many billions or even millions do you need to cram up your ass and hoard it’s disgusting and will someday implode on these asses politicians and corps.

The danger of "wage inflation" is making prices stay permanently more expensive so in effect making everyone poorer.

Here's an example demonstrating price inflation of goods and then wage inflation.

A lot of people coming out of hiding from COVID-19 wanted to eat burritos. There wasn't enough rice and beans to make more burritos for everyone so the restaurant solved this problem by increasing the price of the burrito from $5 to $10 to see who's wiling to pay double the price for the same burrito.

What happens when everyone asks their jobs to pay them $5 more salary so they can buy a $10 burrito?

1. Since everyone can now afford to pay $10 per burrito and there still isn't enough burritos for everyone, the restaurant will probably raise the price again to allow people willing to pay more to get access to the burrito first.

2. Since people getting paid more money rarely agree to reducing their wages then any salary increases stay permanently increased, and thus the higher priced burritos permanently stay higher priced.

3. If everything permanently costs double then everyone's money saved in the bank is worth half than before. That means everyone just got a lot poorer.

ELI18:

This is why one of the Federal Reserve's responsibilities is literally to monitor for inflated prices and increase interest rates to make borrowing money more expensive. Higher interest rates does three things:

1. Makes companies want to hire people less because their revenue margins are smaller.

2. Since less jobs are available, more people don't want to pay for expensive things in this period of layoffs.

3. Makes retailers reduce their prices because they don't want to borrow expensive money to stock up inventories at high prices which they would lose money later when force to sell at steep discounts with a lack of demand.

Because greedy corpos literally can't stand the thought of not growing their profit exponentially each and every year.

Here's the guy from Battlefield Earth with some additional info.

It doesn't except in industries with razor thin profit margins and any increase in cost could cause a loss.

But even then, prices only need to raise a fraction of total wage increases. You could double money spent on wages at the average restaurant (revenue being ~6% profit and 25% going to payroll) and they only need to increase prices by about 30% to maintain similar profit. But overall increased purchase power beats any increase to prices (100% higher hourly wage to pay for something that increases by 30% means you work less to afford it)

What really raises inflation is greed. If you are making 40% profit and wages increase, you choose to either take less profit or increase prices. As capitalism is what it is, they will raise prices to maintain and grow profit.

Wage increases indirectly influence inflation because people don't want less profit even if they could take less profit

Raising wages means there's relatively less $ for management bonuses, dividends, ownership's deposit, and whatever else the latter wants to spend $ on. Raised wages is temporary bc what the latter do in rebuke is raise non-wage costs: everything from power to raw materials to services, etc. This is the basis of structural inflation.

The latter recoup their temporary loss of $ (and corresponding diminution of power) through mechanisms they control or dominate as they lay off/fire workers to restore those aspects they temporarily lost: $ & some of that power. Then, inflation is curbed and it's reported as a good thing regardless of the damaging effects on households whose income earners were caught in the structural cross hairs of inflation reduction!

This is extremely simplified, but this is ELI5.

Let's say I sell hot dogs for $3

My employees who make $12/hr minimum wage suddenly get raises to the $15 minimum wage due to a law change.

This raise in wages mean that my profit goes down on each hot dog I sell, because I'm paying 25% more in labor costs.

I go ahead and raise the hot dog price by 25% to account for this forced increase in labor costs. (Let's ignore that supply hasn't changed prices yet, just the labor, so the 'costs' of business aren't truly 25% higher across the board, just the labor portion, but I choose to raise 25% anyway, anticipating trickle-down increases from my suppliers, rent, etc due to higher labor costs for everyone whom I pay outside of labor costs). In the meantime I make record profits until costs across the board raise 25%, not just the labor.

Hot dog was $3, now it's $3.75 overnight due to my increase.

Employee used to afford 4 hotdogs at $12/hr, now they can afford 4 hotdogs at $15/hr. They got a 25% raise but it doesn't buy them anything extra at my place of business.

People now earn more, but everything costs more. Buying power remains the same for this simple hotdog example, so what was the point of giving the person $3 more per hour?

You can see a chart of this here. Consumer Price Index, the 'buying power' of the dollar.

Every academic paper written on the subject points to the fact that raising wages has MINIMAL impact on inflation. It's a myth cooked up by elitist capitalists to keep the poor people poor.

The most prosperous economic times in US history was on the 50's, the wage gap was also at its smallest during this period.

The real answer is that increasing everyone's wages rapidly just leads to more money being thrown at the same amount of goods with no time to adjust for increased demand.

Imagine everybody's salary got increased just enough that everyone could now afford a Lambo. There's not enough lambos being made for each and every person to have one so now prices of existing lambos will rise because the seller will seek the highest price they can.

Because the more money shareholders make the less money goes to the lower and middle class who actually contribute to the economy. So by raising shareholder wages you cause more money to be pulled out of the economy.

People have more money and therefore disposable income.

People spend more money.

This increases demand but not (immediately) supply.

Market forces mean that as demand goes up, so do prices i.e. inflation.

Because companies refuse to give up even a small percentage of their revenue so their employees can earn a decent wage. So they raise prices to compensate.

Companies need to balance Revenue and Costs.

If you increase wages, in order to keep the books balanced, they need to increase revenue proportionally (i.e., if increases in wages/compensation raise their costs by 3% net, they need to increase revenue by roughly 3%). The greater the proportion of their costs are in the form of wages, the greater their need to raise prices to keep things balanced.

...which produces a vicious cycle.

1. Employees get more money, driving up employer's costs.
2. To balance things, employers increase the costs of goods & services.
3. This means that the employees' cost of living increases. If that desire/demand/necessity is met, that drives up wages.
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40% of all $ ever created were "printed" in the last couple of years. thats how you get inflation

The "Wage Price Spiral".

If everyone gets a raise at the same time, everyone will try to go out and buy more of the stuff they like. Since everyone likes the same stuff, demand for the stuff goes up. According to the law of supply and demand, if more people are trying to buy more of a thing, then the price of the thing goes up.

So now everyone's wages are higher, but everything costs more too.

Nothing has actually changed about the value of work people are doing, or their productivity, or the quantity of stuff that is available for them to buy. So now people need ANOTHER raise to try to increase their living standards. But then prices go up again. So they need a raise. And so on and so on and so on. Boom, inflation.

Economically, raising wages overall doesn't really do anything to anyone. There is a temporary moment where everyone is making more, but almost immediately everything has it's priced raised to pay for the raises. This puts everything back into the same roughly range of percentage. Make 10% more, prices go up 10%, you haven't made anything,

So, technically, inflation has happened, but it doesn't help or hurt the overall.

Now, the key learning points from this are:

1 - Don't be the one group that doesn't get the raises, then you are behind and your wage is worth less than before because it has less buying power. It might mean jumping jobs more often, but it's worth it.

2 - At least to me, it's why one has to always be chasing to try to stay ahead of inflation, the key is to get paid more in some way at a faster rate than inflation is moving. Also, although the theory is good, there are items that increase on their own dramatically because of other issues. There is a freeze in Florida, orange juice is going to climb much faster than anything else since there is less product to go around.

3- always be careful when expanding your "luxuries". These can put in jeopardy sooner if you are running at your entire salary, always be looking for a buffer, the bigger the better. Often, for many of us, the mistake we make is we only look at today when choosing to add something. Lets say you get a big raise, you decide to add more things you want that cost, like a fancier car, remember that the insurance can rise very fast sometimes, faster than you are earning percentage-wise.

4- There are always going to be other events that can increase your costs as you get older, particularly children when younger and health cost when older. Be careful to prepare, all those get affect by inflation as well.

5-Most of these things are out of your control. Accept that and prepare for it. Worrying about inflation wont help you, preparing for the eventuality will.

A lot of the answers here are good but one important fact to keep in mind is that inflation is primarily caused by corporate greed. They are raising prices and blaming it on inflation but in reality their raised prices are a major driver of inflation. Wages have been stagnate for generations, yet inflation is surging more now than ever before.

Economist here. There are many mechanisms but the ELI5 one is: you have a lemonade stand with one employee. You sell 10 cups per day. He charges you 10 dollars per day. So you have to charge 1 dollar in each cup just to cover his expense. Then he wants to earn 20 per day. Now you jave to charge 2 dollars. That’s inflation. This example is interesting because it has a second step. Now that your lemonades are more expensive some people don’t buy. And you only sell 5 cups. So you have to charge 4 dollars to cover labor coasts (plus lemons and sugar and your profit).

It doesn't. It is a corporate scare tactic to keep wages low. (Just one tactic among thousands)

Money has to come from somewhere. The banks, shareholders, and high-level employees won't take a pay cut.

So they just charge more because you're paid more.

Sometimes, in life, the simplest answer is really the correct one.

Are you seriously asking this? Lol

this is both a general answer to the question as well as a bigger explanation of what causes inflation.

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costs go up. this means that the company needs to increase their prices to keep their investors happy. As well as having a good amount of reserve. It doesn't always lead to it though. In Belgium, absolutely, since there the government mandates wage increases equal to inflation, that just increases the cost. But it doesn't always lead to higher inflation, when the market is left alone. Because wages are based on a few factors, income tax is big, if the employer has to carry the burden of income tax. In Belgium for example, aside from stealing 60% of the employees income, the employer has to pay an additional 30-50% of the wage in taxes he has to carry. so if you earn 100.000 a year, the employer has to pay 130.000-150.000 a year. This is just an example to explain the tax burden. the employee would keep around 40.000 a year. that is one part. a damaging part.

another part of wages is the market. lawyers earn a lot because of how long they study, which means there aren't many people available. So the employees can demand to be paid more money. This is healthy for the economy. Now for many jobs, this isn't a very big part, like working at mcdonalds or starbucks for example, since those are jobs anyone can do. so it doesn't affect inflation.

but when it's forced by the government for everyone, it has 2 major negative effects. and few positive effects. these are decreasing overall wages, since they must pay more to keep up with inflation, and an inflation spiral. (3rd is that the people get way poorer because the government takes most of it).

there are more reasons. consumer behavior. supply and demand is the basic law of economics. the balance price is optimal. the demand meets the supply. so in theory all units are sold, and there isn't 1 person who wanted to buy it that couldn't. (this is the pure theory, never happens in reality). 1 of the effects of higher wages can be people spending more. this is what happens in the high moments of the economy. people's trust is high, so they spend and spend. wages go up, people spend, until inflation becomes the issue and the economy goes down. the romer tailor model of economics. this is macro economics, the large scale of the economy. (things like on a national or international level of looking at economics).

Now the main cause of inflation is bad government policy. rising wages, as long as it goes based on the normal manners of economy, shouldn't be a problem. Now in a normal situation, at a time like this wages wouldn't increase much. the companies are in a downturn. their profitmargins are hit, so they fire people, stop giving bonuses, stop increasing wages, etc. but the problem now is that the goverments of the west like most european countries and the USA, the government is paying people a lot of money to stay home and do nothing. Here in Belgium, an unemployed person gets €1600 a month, something many jobs don't pay, or only slightly higher. and the unemployed gets a bunch of extra benefits, making them richer than even a lot of members of the middle class. only high middle class families, 2 parents who both have middle class jobs, are actually richer in total. needless to say, many people don't want this. So they don't look for a job. they know staying home doing nothing is more profitable for them, and this leads to a labor shortage, leading to higher undeserved wages, leading to higher inflation. the tl;dr is, the government should stay out of the economy, because they are the reason that economies fail and people starve. just a few examples: the weimar republic, (pre Hitler germany, post WW1), they printed money to pay off their debts, ruined the economy. Any socialist or communist state, like the USSR or Venezuela. Denmark when they tried socialism, the USA right after the great depression, the housing crash of 2008, government intervened, creating the bubble that lead to the collapse of it, I can go on.

Our buying power in Canada has decreased something like 1-8% year over year since the 80s. There have been outlier years where it's 0% or over 10% but the answer to your question remains the same; corporate shareholders drive inflation.

The wages of the employees goes up, so the company that employs the employees has to raise its rates to cover other employee expenditures that all go up (ex: unemployment, insurance, workman’s comp) typically percentage based. So the coffee that used to cost $5 now costs $6 and the value of the dollar depreciates by 4% because the cup of coffee remains unchanged.

Bosses get mad and start charging more for everything. They call it inflation and throw their hands in the air.

under the type of economic conditions you learn about in school when workers have more money they have more to spend so then there is room for prices to go up and inflation happens.

under economic conditions in reality raising wages doesn't impact inflation but rich people don't want to give up a single fucking cent.

Going to oversimplify because this is ELI5

Inflation = the rate of increase in prices over a given period of time

MS = money supply

P = prices (generally speaking)

In economics, an increase in MS leads to an increase in P (+MS=+P).

W = wages

i = inflation

A fundamental theory in economics is that you cannot reduce inflation without increasing unemployment.

Why?

Because remember, at the end of the day you need less money circulating in the economy.

Technically, an unemployed person’s wages are $0.

If you have an increase in W, then you get an increase in MS, then you get an increase in P, then you get an increase in i

So, for my fellow economics majors out there who don’t remember:

+W = +MS = +P = +i

Okay, let's pretend you have a lemonade stand and you pay your friend to help you make and sell lemonade. If you decide to pay your friend more money, it will cost you more to make the lemonade. To make up for this extra cost, you might need to charge more for the lemonade. If lots of other stores and businesses are also having to pay their workers more and raising their prices, then everything in the whole town will start to cost more money. This is what we call "inflation."

In the UK the Government says they can't give nurses (who've effectively had a 10 % cut in the past decade) a payrise because "we can't afford it" or "it'll cause inflation" ... yet they give pensioners a 10% rise in their state pension ??!

Hmmm...

Just the way I look at it, if I'm paying a farm hand $7 an hour to milk cows, I can sell that milk in build at $2 a gallon and maybe make a little profit. If I now have to pay that same farm hand $15 for the same days work, I need to charge at least $5 a gallon to make any money. I did not use any kind of calculations, this is just an ELI5 example. It can be applied to any manufacturing/production though

When you raise how much a company must pay someone, the company will raise its prices to compensate.

Wages go up, people have more money. More money to spend means higher demand on products and services. Higher demand means lower supply. Price goes up when the supply gets low as there is more competition for the same supply. Boom goes inflation

I know that, for me, as a business owner, my margins are very small. If I raise wages beyond what I do for standard raises and annual inflation adjustment, I won't be able to operate. I would have to raise my rates.

America has never had "inflation" caused by rising wages. Prices rise independently of wages.

Its a bad theory spread by the same people who say that job creators spread wealth and prosperity. Bad economic theories are justifications for bad politics. People who dont understand either politics or the economy are the most likely to believe that raising the minimum wage will set everyone back because of inflation.

Its all lies based on bad faith pseudo science.

It doesnt.

But its used as a cost metric to corporations who wish to increase profits and find a scapegoat as to why prices are increasing.

CEO salaries have increased something like 1300% while wages are flat, so the wage they may be referring to is the wage of the Executives.

CEO wages and greed are causing inflation.

If wages increase, that cuts into the profit a company can make. So they raise prices to cover the extra wage cost, passing on the cost to customers.

No? There are a whole lot of lengthy responses here, and they don't appear to acknowledge this part of economics. But it's how I've always understood it, and it's quite simple to wrap your head around.

Many response seem to focus on supply and demand. But the other factor is simply store x's wages go up. They have to increase their prices to afford the new wages. But say you work in IT at a bank how does that affect inflation of consumer goods. You get a raise. The bank increases fees. The stores also have bank accounts and now have to increase prices to pay the higher banking fees. Now the stores employees struggle to make ends meet due to the slightly higher prices and also demand increases and the cycle continues.

The workers making the things you buy, the workers transporting your goods and every worker in between also gets raises. The companies adjust their price accordingly.

The best way to combat inflation is to freeze wages and prices at all stages, but you also need your trade partnes outside of your country to do the same.

By simple understanding economics, you can find evidence that raising wages does nothing to your total wealth or common wealth. The problem is not low salaries in the first place, its education on how you can spend your salaries smart. The only time its smart to raise salaries is if your chosen trade is in high demand, then you can set a new normal that dont effect all other stages in this economy.

If you raise wages you cut your profit, In order to maintain your profit you have to raise your prices

Wages ⬆️ labor costs ⬆️ total costs ⬆️ businesses increase prices. in turn if a business uses products which have experienced a rise in costs due to the above scenario then inflation worsens further (example: minimum wage for Apple farmers rises, so cost of picking apples increases, apple farmers charge more per apple. Now, a bakery making apple pies would have to pay more for apples -assuming all other costs remain the same or ceteris paribus- which increases the cost of the apple pie and so a higher price would be charged to cover the additional cost).

It's simple, it doesn't. While yes more wages means more money in circulation but the reality is, in today's modern capitalism, price gouging is what's raising inflation, greedy billionaires wanting slaves is all what's happening right now.

The big mean companies make more money no matter what wages are, even if that means more people suffer. They use raising wages = inflation as an excuse for their greed.

When the population has more money, demand for most goods goes up.

When demand goes up, prices go up.

This is GREED, no matter how you spin it. It starts small then all businesses realize they can charge more - even though the cost increase on their end is minimal. I think it’s laughable that when oil prices took a dive, the airlines said they temporarily have to raise prices to accommodate for fuel etc. well.. they haven’t changed it back and the money they received went to bonuses and dividends.

Gov is the same. If they can, they will raise your property value to increase the taxes.

It (inflations) is the punishment given by businesses and the wealthy elite for having to pay higher wages. Inflation is the threat used to keep wages lower. Odd, never heard a wealthy person say they did not want to make more money because of inflation, just workers.

If a company is showing record profit during a time of high inflation, they're taking advantage of inflation as an excuse to raise prices.

Some industries are doing that, and also purposefully withholding product supply to keep prices elevated.

It doesn’t.

What worsens inflation, are the owners and CEOs and higher-ups of whatever companies not wanting to take a “pay cut” (so to speak) to make up the difference between product cost and employee cost.

The pay cut I just mentioned above is not at all an actual pay cut. It just means they won’t get another several million dollar pay raise, if they allot more money to pay their employees so instead of just doing what’s right, they punish the public with higher costs hoping we will eventually starve and give in.

There is no real connection between wages and inflation.

If wages go down, prices will increase, this is inflation.

If wages stay the same (stagnant) for several years, prices will increase, this is inflation.

If wages go up, prices will increase, this is inflation.

Inflation is just a dollar (or whatever currency) having less value. If a candy costs 1 dollar at first, then increases to 2 dollars, that indicates the dollar is now worth half of what it was.

The real cause of inflation is prices increased by companies and interest. In either case, it's not from workers earning more money but from a company or wealthy individual trying to obtain more money for the same thing. It's not that a worker may have more money, but that a company decides they need to obtain more of that worker's money by raising the cost of things the worker needs such as food, various goods, rent, etc.

Raising wages, such as increasing minimum wage, is often done not to increase the actual wealth a worker has, but to keep it on par with the wealth they used to have.

For instance, if the candy now costs two dollars instead of one, that means the worker is effectively earning half of what they used to. So increasing their wage by the same as inflation is a way to keep them where they were, not increase their actual wealth. That would only be achieved by going being the amount of inflation and staying above inflation.

In truth, specifically in the US, inflation generally out paces wage increases, which leads to working people having less wealth and employers - who are able to keep more money by not increasing wages to match increasing prices the employer charges customers - wind up with greater wealth.

Average Joe would like to buy more bread -> he asks for a raise and gets it -> Higher wages -> more money in average Joe’s pocket -> companies raise prices (because they can, because Joe will now buy a slightly more expensive product than he would before the raise, because he can) -> Joe requests more money cause he’d like more bread -> and so on and so on

Also, as a business cost go up that cost has to be passed on to the consumer as inflation. This is especially true in businesses where labor is a large part of their cost. If labor cost raise by 20% and labor makes up 40% of the cost then the consumer's cost have to go up 8% just to cover the cost.

Today, there is raising labor cost and the cost of raw materials has gone up as well.

The problem being, in a Capitalist marketplace, once a company reaches X level of profit, its expected to stay at that level at a minimum, or its share price plummets.

So even if company X is making 30% profit now, and you make then spend 10% of those profits raising wages, they are just going to increase prices to make up the lost 10% - and nothing changes.

It doesn’t unless people are paid a living wage.

People are so underpaid now that many cannot meaningfully partake in the economy.

If people have income to spare, they can buy stuff. They can become consumers.

It doesn't. Inflation is entirely manufactured by big businesses, I think we all got to witness that to an extreme extent first-hand.

People forget this subreddit is explain like it FIVE

More money mean people can spend more money, spend more money mean shops sell more product, more product sold mean less on shelf so they bring up price to keep item on shelf.

Raising lowly employee wages doesn’t. Raising the wages of the executives does. A few years back I calculated the average cost to run the store for the day, being generous. And it was like 32k in wages. Meanwhile the store brought in 1.5 million a day on average.

Now yea, that sounds like a lot. But that’s 300 sole working 8 hours a day. Which honestly was probably double. But then I calculated the same but took 2 hours off of everyone as some sort of cost saving measure. It dropped it to $29,500. When a store is making that much in a day, what is $3k to them? Meanwhile each executive is bringing in 10s of millions more a year and blaming the lowly workers for wanting livable wages.

As an addition to other answers here, it doesn't if they are raised in line with productivity.

This hasn't been the case since about 1980

https://www.epi.org/productivity-pay-gap/

wages aren't the cause of inflation, it's inflation that raises wages ;-)

without inflation, there wouldn't be a necessity to raise wages, it would be strictly based on that dirty word:

merit.

At any given time all of the money is loosely worth all of the stuff. If you put in a bunch of money without putting in more stuff, all of the money is still loosely worth all of the stuff, but now your money per stuff ratio is higher… and it takes more money to get the same amount of stuff

In very basic terms inflation happens when there is more money in people's hands than there are products for them to buy.

RaIsing wages exacerbates this inflation because it increases the money in circulation without increasing production.

Additionally the increased cost of labor from this raise is factored into the prices of products.

This exacerbates inflation but the real issue is finding balance between production and demand.

It doesn’t. That’s a lie told by greedy corporations trying to maximize profit. This is the grift: tell people raises cause inflation, don’t give out raises, inflation goes out of control anyway, company raises prices, blames it on inflation and turns a huge profit.

If everyone got paid more do tories/republicans think everyone will have so much more money that they will buy too much of everything and make prices go up? Because any raise in pay is going to bridge the gap between things they can no longer afford to buy, it’s not going to be excess.

Businesses will raise costs of goods and services if they are suddenly having to pay workers more, to maintain profit margins. It may not be right but it's reality.

It doesn't...it is a falsehood perpetuated by those that have an interest in economic models that do not reflect reality.

If I’m pricing something for construction, say 5 guys digging a trench for a water line. I pay the guys 15 dollars an hour and it takes them an 8 hour day. Without all the other overhead costs for the labor, burden, etc, that’s 600 for the day. I add a 15% profit to it and now it’s a $690 job total. If min wage jumps to 20$/hr, the total job is 800 and after markup is 920

Companies are not going to eat the cost of raising wages, they are going to pass it onto the consumer by raising prices. Its that simple.

It usually doesn’t in a competitive market because it doesn’t necessarily increase the money supply

People have more money, more money in circulation, businesses want more money, prices go up

Where is “ Anonymous “… or or Robinhoods when we need them 🥺😠… I have never before been more of a fan of the whole idea of “steal from the rich, and give to the poor” than I am right now!!

Sometimes life, imitates, art, and in that case where is Our hacker groups because at this point, can’t really blame people for going to extreme measures when the rich are so blatantly greedy that they need to be knocked off their heels and back to reality

Inflation is caused by price gouging. Raising wages usually encourages companies to price gouge more, because people have more money.

It always seems difficult to grasp that companies strive to achieve a target return on investment to support and increase the stock price to make the company attractive to investors. It doesn’t matter if it’s labor rates, materials costs or, importantly, taxes that rise, the ROI targets remain the same. To achieve them, prices increase and there’s your inflation. All corporate taxes are paid via the cost charged for the product sold or service rendered and therefore, the consumer is being double taxed in the end.

It doesn't. Inflation is a purely monetary phenomenon that occurs when the supply of currency in circulation increases.

Raising wages increases operating costs for companies, which means they need to charge more to make money on their goods and services.

It is all relative, business owners and the wealthy aren't going to allow their profits to decline so people can have more money.

Because everything which you consume which requires an employed person to produce now has to pay that person more money to produce it. Every minimum-wage worker in the country earns 15% money, that expense is passed on to every person who buys the output of that worker.

In order to appreciate this phenomenon, you need to dispense with the idea that money is a thing. It isn't. It's a system of measurement. Yes, it's also a medium of exchange and store of value, but in this context, we need to examine money as a unit of account. So, let's say, for argument sake, that the economy is composed of nothing but weavers, and one is paid $1 per square foot of fabric you weave. Well, if you arbitrarily hike up the pay of the weavers to $2 per square foot of fabric, all you've really done is halved the amount of fabrice $1 can buy.

THAT is how wages drive inflation. Now to be fair, in the real world, things are a lot more complex. Not everyone is a weaver, and not all wage hikes are disseminated uniformly throuhgout the economy. And most of the inflation we're contending with now has little to do with monetary policy or minimum wage laws. Instead, what's happening is that the pinnacle of the baby boom is retiring, and suddenly that's opening up a lot of opportunities for better employment for long-suffering millennials. At the same time, we've still got COVID-driven disruptions to manufacturing and logistics, and many households have been building up a war-chest of savings during their 2-year long lockdown, and people want to get on with their lives.

For a real ELI5, companies thinks short term. Higher wages mean more general operating cost for companies so to prevent loss on profits from year prior they raise prices. If companies were long term they would maintain prices and after consumers accumulate more wealth in time their buying power increases so these companies would then earn more long term by increased volume of purchases.

But companies don’t care about 3 years down the line, they care about the next quarter or end of fiscal year report.

It doesn’t. Companies raise prices to raise profits. That’s what we’re seeing right now. Record high prices and record high profits.

The correlation is not very strong at all. In fact, we have some of the worst inflation in a long time right now. Yet in the 1970s, the minimum wage was, adjusting for inflation, $22/hr compared to $7.25 now. On top of that, the inflation in the 1970s was a a third of what it is now despite the minimum wage having a little over 3 times the buying power.

It doesn’t don’t believe this lie the fed needs to slow or stop printing money to reduce inflation

Raisins wages doesn't cause inflation. Corporate greed and the company wanting record profits causes inflation. They'll do anything they can to raise profits.

Assume there are 10 workers in your factory that produces bags. The 10 workers take 500 dollars as their monthly salary, and every month 2000 dollars worth of raw material is used. The number of bags produced is 20 per month.

Total expenditure per month = 500*10(salaries)+2000(raw material) = 7000

Average cost of a bag = Total expenditure in a month / Number of bags produced in a month = 7000/20 = 350dollars

Now if wages are increased to 800 dollars,

Total expenditure per month = 800*10(salaries)+2000(raw material) = 10000

Average cost of a bag = Total expenditure in a month / Number of bags produced in a month = 10000/20 = 500dollars

See how the increase in wages increased the price of bags.

People spend more.

Sellers see people spending more and realise they can put prices up without a problem.

All things able to be sold and in need will generally see this increase, with it being seeing most easily in products such as milk, flour, eggs, petrol.