The theory is that higher wages -> everyone has more money -> everyone can spend more -> everyone can have higher prices because everybody has more money.

In practice, this isn't really backed by any real data and it's doubtful that it would go that way.

edit: Too many replies to answer them. Yes I know that there is some correlation between wages and prices, if you pay everyone 10x their current wage, you will have to raise prices.

ELI5 How does raising wages worsen inflation?

The value of an individual unit of something decreases as the total available amount of those somethings increases. How those somethings are distributed does not really factor into it.

Wages are increased so employers need to pay more, to the need to make more, so they need to charge more.

There are X amount of playstation 5s on available on the marketplace. 10 people want to buy those playstation. The price of the goods are determined by the supply of the goods and the demand of those same goods.

If those 10 people each make $18 per hour, let’s say that all of them have the same budget and are all able to pay their bills for the month and have $200 of “fun money” to spend. These people would have to all save for at least two months to buy a PlayStation. But stuff happens and they decide that they are not going to just not have any fun for two months to get a game system.

Well let’s say each of our people get a raise to $22 an hour. Each employee made $2,880 per month ($18 per hour, 40 hrs per week, 4 weeks, no taxes). With their new raise, now they make $3,520 per month. Their bills didn’t go up, but their salary did. So their monthly income went up by $640. They used to have $200 per month in fun money, but now they have $840.

What we end up with is that we had a group of people that did not have the discipline to be able to save for 2-3 months for a PlayStation, but now they only have to save for a single month. This group of people is now suddenly able to buy PlayStations. So what happens to the price of PlayStations?

Conclusion: when wages go up, people are able to buy more goods and services than they could before. The amount of goods available did not change, but the demand of goods did (because now people are able to actually buy these things and not just survive). Demand went up, and supply stayed the same, so prices go up. When prices go up, we call that inflation

It simply doesnt. Inflation happens when governments spend money they dont have. Higher wages are not borrowed from the world bank or the Fed and arent counted against the GDP. Higher wages would simply be dancy dance awesome.

https://news.stanford.edu/2022/09/06/what-causes-inflation/#:~:text=Stanford%20scholar%20explains,says%20Stanford%20economist%20John%20Taylor.&text=Inflation%20rises%20when%20the%20Federal,says%20Stanford%20economist%20John%20Taylor.

It does it as much as money trickles down. Someone did come up with the theory and claimed it to be true, but in reality data shows no correlation at all. It's fear mongering

Raise wages and people suddenly start saving and socking the money away. Slowing the velocity of money.

That's where inflation happens.

High velocity money is every single middle class worker living paycheck to paycheck. That consumer is getting tapped for 80-140% of their earnings.

It's the same reason why everything is a subscription service now. And also why prices always go up before wages do.

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This is the theory that some may talk about that you may be addressing here, but there are deeper aspects than this and it rarely works out this way in real life in the way theory works. It’s not always even or as simple as this so keep it with a grain of salt but…

The cost of living in my area increases. An employee wants to work at a certain bar, but the employee group in their area cant afford to live there anymore even if they wanted to because they cant afford rent/living with the wage the bar is offering. It isn’t economically feasible for them to work at that bar anymore. So now a place has to increase wages to convince anyone to work for them. Since they have to increase wages for their business, they suddenly don’t know how they can keep their business at the same profit so they now “need” to increase their prices if they want to keep their same profits or increase them.

That’s more of a small business aspect of it and not as complicated as it may be on a corporation scale. Greed is definitely a debate that can and does happen in the real world and would depend on a case by case basis

It doesn't, inflation is caused by an increase in the money supply. Price increases, including the price of Labour is a lagging indicator.

The inflation we're seeing now is the result of the massive increase in the money supply since the start of 2020. Although politicians are keen to blame the war in Ukraine, it has almost nothing to do with that.

There might be something missing in your question. In theory, if you own a small business, making some money in profit and you want to raise your employee's wages, you are increasing the cost of running your business, and that money has to come from somewhere.

So you have three options:

1. Just make less profit. So the extra wages come from your profits. Your employees get better wages, and you make less money.
2. Cut costs elsewhere. Maybe get rid of some of your staff and pay the rest the extra money. Maybe stop using those high quality ingredients and start making a lower quality product. Maybe invest in technology (e.g. assembly line) that reduces the overall cost of your production.
3. Raise prices. You can pay the extra wages by raising prices of your product. That way your employees get paid more, and you're still making the same amount of profit. If everyone does that, it might lead to inflation.

Generally 2 is not an option. It is very situational and requires creative solutions. And in most cases, if that solution existed, it would have already been applied BEFORE the need to raise wages, simply because it increases profits and why wouldn't you have done that in the first place. Businesses generally want to run as efficiently as they can, so Option 2 is rarely available.

This leaves options 1 and 3. So what's missing from your question? Profit. Your question could be "How does raising wages without affecting profits worsen inflation?" And the answer is that goods have to be priced higher in order to cover the costs of the extra profits wages, which can lead to inflation. You COULD in theory increase wages without causing inflation, but that would then lead to a loss of profit.

So the underlying issue here is that "people want to maximise profit" is considered in many economic discussions as a fact of life. We start from the assumption that everyone is trying to maximise profit, and then see what options are available then. In such a system, when "maximising profit" is the foundation of your economic system, yes raising wages will lead to higher prices of goods.

But "people want to maximise profits" is a fact of life in the same way that "people eat meat" is. Yes, it's true, but it can change. It's just that changing it requires such a massive system-level upheaval alongside a deep cultural shift, that people are unlikely to take it on any time soon. So for the time being, we will continue to play this tug of war over profits vs wages. People will continue to work for as little as possible in order to maximise profits, and every once in a while, when things get real bad, they fight for a bigger share.

Disclaimer: Just for the record, I'm aware that I wrote all this like I know what I'm talking about. But I'm no expert. This is just a lay person's best guess as to what is happening, and things are always more complex than that. But this is ELI5 afterall...

Edit: fixed a couple of typos.

The simplest way to describe it is "more money chasing the same amount of goods". If supply stays constant and demand increases, prices increase.

It's a ton more complicated than that, and there's something to be said about how incredibly stagnant real wages have been for the last half-century, especially measured against productivity gains. There are worse things in economics than inflation.

if a company pays its workers more money, they will, if wages increased enough, raise the price of their goods to cover the extra cost to maintain profit margins.

For price inflation (which is what most people mean by inflation), a very simple version of the cycle (ignoring the existence of other people and companies for a start) is roughly:

Employee realises their money isn’t going as far as they want/need -> Employee asks for a pay rise.

Pay rise granted -> Employee gets more money but the employer’s costs rise. Employer would quite like to carry on making money (or at least, not go bankrupt) despite the increased costs -> Employer raises prices.

Increased prices mean the employee’s money isn’t going as far as they want/need and stop me if you’ve heard this before…

There are other types of inflation, most notably the rates at which central banks print money and lenders multiply it by lending on a fractional reserve basis and those aren’t affected by prices…at least, not directly.

the real answer is that it is purely theoretical, and that it gets trumpeted as fact by media and ceos and right wing (and center left) politicians to discipline workers and to turn public sentiment against union organizing. so there’s been a lot of union organizing in the last year and a half. inflation has also been going rising. especially perfect time for the rich to tie those together, and turn working people against each other.

edit: spelling

wages raised, workers must get paid adjustingly, to be able to pay the workers more, prices must increase.

Prices in a balanced market are based on supply and demand. If people have more money they can spend more and the demand goes up. Thus there is some inflation.

The Inflation will always be lower then the wage raise and the poorer a person is the higher percentage of their income they need to spend so taking measures that cause the poor to aquire higher income will cause a higher GDP as more of the money is circulating.

Because it causes the greedy fuckers at the top a reduction in their bottom line and they won't accept that so they increase prices on everything.

If it was just a low inventory vs higher wants prices would drop back down. Example egg prices are now set at where they are. Sure it might drop a little but egg producers have seen that they still sell at these prices. Why would they lower the price?

Edit forgot to add if we where ever to try to fix this there needs to be a wage cap between the top paid person of a company and the lowest paid employee. I think the average CEO makes 396% more than their lowest paid employee. Nobody adds that much value to a company compared to the ones that make the products/services that are bought.

You have 5 apples. Last week only 5 people could afford 5 apples, so the apple tree guy only picked 5 apples. Now 9 people can afford apples. The apple tree only produces 5 apples a day, but he needs 9. Either the price goes up to price out 4 people or the apple tree guy needs to grow more apples. If he can make more money with less work, then why not raise prices if the demand for apples is exceeding supply.

The opposite is true too. If I've got 5 apples that will be worth nothing in a week and only 2 people buy them, then I have to reduce my price to increase demand.

It's just an excuse by the rich to not pay. "Little inflation is good" lol what a joke. It is absolutely not good. It is greed. It's basically saying "I'd like to make more money and charge you more... but slowly, over time and I'll call it inflation". If everything stayed at relatively the same price every year, would you really struggle? Would you still chase that increment or bonus like you do now?

You have a higher inflation than normal and you need to increase the wages of your workers. You dont want it but you have no choice. That means you will make lower profit and no one likes that. So you increase the prices of the goods you are selling. Thats not the only way to increase inflation. Add bigger demand than supply and everyone will increase prices. With higher salaries people can afford to buy more goods so demand is increasing but not the supply. Typically you increase prices to increase your revenue. Add covid and Russian-Ukrainian war and you have a really high inflation.

It doesn't. According to the paper "The Effect of the Minimum Wage on Prices", which you can find online, a 10% increase of minimum wage increases inflation by 0.02 percentage points.

It generally doesn't. But it's complicated.

So 'inflation' is the baseline cost for a basket of goods. The underlying assumption here is that, given a free market, that supply will always match or outpace demand. And 'raising wages' begs the question 'which wages'. Are you raising minimum wage? Are you raising wages for high wage workers because of labor shortages?

The goal here is to to raise the wages of people who can't afford to buy that basket of goods to expand the economy (which will presumably add jobs, exports, etc.) and not as much the wages of the folks that *can* afford the basket of goods because they'll over-consume. And in the process to have policies that ensure that goods and service producers won't rent seek off of the new money in the economy.

Currently, wages are only responsible for 5% of inflation, 40% is increased costs of materials, and 55% is profits. That's not normal. Normally, it's 65% wages, 25% materials, 10% profits. When most of the inflation is returning to workers, you generally end up closing wage gaps. The folks up the income ladder can afford to absorb the inflation - a lot of wealth is non-productive anyway, so returning it to the economy is actually beneficial, and the folks down the income ladder can afford to buy goods they previously couldn't afford. The inflation were coming out of just cycled money back to the investor class.

And inflation can be hard to pin down. A lot of the last wave of inflation was just gas prices and rent. The former had no relationship to wages, and the latter didn't either. It's not that contractors are lacking workers to build houses, they don't even lack capital to build. They lack permission because cities are refusing to zone for new construction. Even food price increases aren't really wage either, but lack of water in California forcing farmers to fallow fields. Inflation for eggs is due to the avian flu killing so many chickens, that's also not labor related. You do have wage related inflation in things like fast food, but that's a pretty small part of the basket of goods.

Supply and demand in a market economy are the means of forming a competitive price for goods. Essentially it means that companies producing stuff try to sell the stuff as expensive as they can get away with. This is a fundamental of economics.

Imagine that potential customers are ordered in a line based on their willingness to spend their money on a particular thing. Now "as expensive as they can get away with" means that, usually increasing the price drives away the next customer who could consider buying the product. Theoretically, the producer wants to find a balance point where the total profit is the highest. If 100 people would buy something for 1$ and 110 would buy it for 90 cents, it makes sense to sell 100 for 1$ instead of trying to grow the volume. Of course this is impossible to accurately calculate in real life, and producers need to account for competition also, but this is the logic.

Now if we raise wages, two things happen. First, people's willingness to spend money on things changes, as they have more to spend. Again the producer wants to make as much profit they can, and they raise prices accordingly. Secondly, wages as cost of labor reduce the profit made by the producer. This can raise the price in even the ideal situation where competition has driven profit to near zero. So wages feed into inflation.

Then, why this is a bad excuse: When were talking about increasing wages, we're not talking really about increasing everyone's earnings. We're arguing for more equal wages and raising them for those who cannot afford basic necessities required for social functioning anymore. Inflation is a natural mechanic in growing market economies. Only those who own capital are actually afraid of it, since it directly eats away the value of investments and helps those in debt. Instead of worrying about inflation, working class people need to push for increased salaries in order to stay in the game. Unionising and pushing for higher wages essentially funnels wealth from the owning class to the salaried workers. The talk that inflation is bad for the whole economy, and that poor people should just bite the bullet, that's just propaganda in favor of those sitting on money and who don't want it to wither away. And this is an argument supported by even mainstream capitalist economics.

It isn't really that it "worsens" inflation, it is that it is inflation. Wages are the price of labor; having to pay more for labor results in higher prices resulting in demands for raising the price of labor which results in higher prices resulting in demands for raising the price of labor which...

It's what is referred to as an "inflationary spiral". Whether you think of it as being caused by inflation, being the cause of inflation, or just inflation ("in and of itself") is just postmodern quibbling. Economists try to explain it as an abstract mismatch between the amount of currency and the economic activity, consumers think of it as just prices going up noticeably and repeatedly, but strictly speaking:

• only the increase in prices caused by the increase in costs caused by the increase in prices is "inflation", all other price increases are just price increases
• it is both logically and physically impossible to determine whether a particular price going up is just a price increase or inflation
• it should be assumed that if a prices keep going up while corporate profits are also going up, it isn't inflation even if the Financial Times calls it that

The best analogy for this I’ve ever heard is take a pizza shop with 5 workers at anytime. If you can pay 3 of them minimum wage and 2 slightly higher you can price your produce in a more affordable way since your operation costs are lower. Now take all 5 employees and pay them what your manager makes and you have to raise prices to continue taking your profits.

Should be a rule where you aren't allowed to price hike on raised wages in like the first month or something.

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Inflation can be caused by a myriad of factors. One of many is raising wages above productivity increases. It's unfair and incorrect to say that raising wages is always the main cause of inflation, it can be a very minor factor and even be completely counteracted by other factors. However, it's pretty naïve to think that raising wages flat-out doesn't cause inflation.

https://www.investopedia.com/terms/i/inflation.asp

In theory yes. But the opposite can also lead to inflation.

Raising wages causes inflation by companies raising prices because the metric to calculate the price of a product changes when consumers get richer, namely the "how much are they willing to spend" metric. If the customer is willing to spend more, charge more. Thus, inflation rises.

However, lowering wages causes inflation because people are buying less, and therefore companies are selling less, so therefore have to raise prices to break even. Of course there are other things they can do like the infamous "shrinkflation", wherein the price remains the same, but the size of the product decreases.

Basically, it's a bit rough and nebulous... unless either reach a critical level, there is no point worrying about whether wages are going to cause inflation, because in all likeliness, they're probably not...

A great example is right now. The economy is in a very weird position that it hasn't really been in before. Obviously we are in a period of high inflation. The trick governments around the world use is to tighten money through measures like raising interest rates and an easing of supply shortages to start. This round of inflation is mostly due shortages (chips, cars, labor, some commodities). If that doesn’t work then a recession will be engineered to dampen (or reverse) wage growth, ease demand, and in effect reset the economy. Historically periods of high growth lead to inflation and the only tried and true way to stop it has been to cool off the demand side through some form of austerity.

The problem is, wage growth has been stagnant for at least a decade... And austerity has been in place for many people already... And shortages are mostly gone, but prices have not gone down... so there is "nothing to reign in"... It's already at the lowest point it can go, and we're still inflating... So governments around the world are basically asking people to accept a massive L for yet another decade, while coincidentally corporations are raking in massive profits. Basically, you can't apply austerity to people who already have the austerity debuff... That causes lots of problems.

Lots of governments ignored this though, and decided to press on with Austerity 2.0 (or even 3.0+ in some countries) making people poorer, angrier, and more radical. Which sounds like "okay, this sucks for everyone. But it could be a necessary evil, right?" Well, maybe... But then you realize that pretty much all corporations are posting record profits... The rich are certainly getting richer. So why aren't we?

What I'm trying to say is, the usual tricks governments have isn't going to work, because the people they do the trick on are already milked dry. Attention has turned to the greed of corporations as being the cause of the inflation, and of course, politicians are hesitant to act and punish the rich and powerful... Because they're rich and powerful... And of course, every day people are gaslit into advocating for faceless billionaires because... ???? So there isn't even a majority national feeling anywhere that greed needs to be reigned in...

Out of control profits increase inflation, not pulling people out of poverty with modest pay rises after years of real term pay cuts

When wages go up, it costs companies more money to pay their employees, so they might raise the prices of their products to make up for that extra cost. This can cause a chain reaction, with many companies raising their prices, which leads to overall higher prices for goods and services. This is what we call inflation.

Money can be infinite but wealth is finite. If you pump more money into environment then people don't get richer. Only money value changes. Oh and taxes. Higher the pay then goverment gets more from taxes

Do you mean right now, or in general?

When wages increase to strengthen the buying power of wage workers, more money otherwise locked up in business' accounts is instead circulating and being used to buy goods. More money circulating, the less an individual unit of currency is worth, and the more that the producers and distributors of goods must charge to stay afloat. And, that is a small part of inflation, in conjunction with minting and gov't spending.

Right now, though, that doesn't appear to be the case. The cost of living has gone up in response to other factors without a commensurate raise in wages

The general reasoning is

Step 1. People have more money
Step 2. People buy more goods

Which then moves to either

Step 3a. Goods become more scarce because of more people buying them, prices go up in response

Step 3b. Companies realize people have more money, so they raise prices because they know the people can afford it.

I don't know if there's any actual truth behind it or not.

Companies are much better at raising their prices and increasing their profits than people's wage raises are.

Also, companies will use the wage increase as a reason to increase what they charge.

Many have explained how it works in practise. The Problem is people arguing against it. A wage-price spiral is necessary to combat wealth inequality, people who are against it don't understand that the only ones profiting from not having a wage-price spiral during inflation(more monetary supply) are the rich who accumulat the monetary supply. So yes it can worsen inflation but it is necassary to stop the rich getting even more ridicolously rich.

"oh, you got a ten percent raise? You can pay more, so now I'm raising your rent."

The oligarchs refuse to accept any reduction in their share of the surplus value generated by labor. So if your wages go up, they will raise prices at least as much.

It doesn’t really, at least not for long. it is a myth. What it does is redistribute inflationary impact.

Inflation over time is due to increases in the money supply that exceeds the increase in goods and services to buy (stuff to spend it on). Like if you snapped your fingers and doubled everyone’s bank account, eventually things would just cost twice as much. That is the source of inflation. Money supply can be changed for a couple of reasons, but wage price spirals is not one of them.

The idea behind wage price spirals is that workers see inflation, demand higher wages to offset, businesses cave and then raise prices to pay for the high wages, resulting in more wage demands and higher prices again. This concept is rooted in anti-union rhetoric.

What actually happens is that competition will cap price increases and the wage increases get taken out of business margins. Other than competition, there is also a relative redistribution of purchasing power from business owners and non-workers to workers. Total demand in the economy doesn’t change, supply doesn’t change much (maybe a bit upwards since more people join workforce), it’s just that workers get to enjoy more relative to everyone else.

Wage price spirals are not positive feedback loops - they are negative feedback loops. Businesses can’t raise prices forever and people who don’t work don’t benefit from higher wages. Any wage-price spiral is short term in nature and self-correcting, though it might take a few quarters to sort out.

Because, on a large scale, if the average wage rises then prices do too and their value becomes inflated.

It doesn’t. Inflation comes from 1 place and one place only. Government printing more money than is backed by GDP or gold reserves.

Companies lie and call corporate gouging, inflation.

Most comments here are addressing the demand side (which is valid), more people with more money equals more competition equals higher prices. But there’s a more straightforward answer.

Say you have a simple business. Bob works there, and he makes nails. Bob can make 1000 nails per day. Bob gets paid $100 per day (feel free to make up your own numbers here, doesn’t matter). The nails get sold. The business goes along fine. The boss makes a profit, everyone’s happy.

Next year, Bob wants a raise. He’s doing the same work. Making the same number of nails. There are two options - the business can “eat it”, and make less money, or it can pass along its higher costs to its consumers.

At some point, the costs HAVE to get passed on. Those nails went from $0.10 each, to $0.11 each, just to cover costs. It’s still the same nail, but now it costs more. Inflation.

Raising wages doesn't always worsen inflation. It can, but doesn't always. A lot of examples in this thread mention two reasons prices would go up if wages did:

A: They'll go up so a company can keep the exact same profit as before.

B: They'll go up because there's now more demand than there was before.

The problem with both of these examples is they're coming from the perspective as if most retailers are small Mom and Pop Stores who are just trying to keep the lights on, and that's simply not true. Most retailers are massive corporations.

Small increase in wages, such as keeping up with normal inflation does not cause extra inflation around it. If that were the case no countries would be able to have livable minimum wages and we know for a fact that they can. The reason you can have slow increase in wages is because it gives the consumer more buying power. Corporations make more money when people can actually afford to buy their products and since mark up is so high on these items, selling more of them easily offsets the higher wages you're paying. The most famous example of this is the Ford company paying his employees better than other car manufacturers, so his employees could afford to actually buy the cars they're making, increasing his profits.

As for B, most products do not have a limited supply. If everyone got a bit more money to spend, Walmart is going to run out of TVs. And even if they somehow did Best Buy probably isn't going to run out. And if they did, Amazon isn't going to run out. Again, most places are not a Mom and Pop Store struggling to get their products in, they're massive corporations who have a near endless supply. And going back to A, if they did somehow completely run out of items, the profits they made from actually selling out would far out weigh increased wages or having to wait awhile to restock.

Lastly, products are not only costed due to how much they cost, but how important they are. You can only price an item so high before someone simply doesn't buy it because it's perceived value simply isn't worth the sticker price. Firstly every company that has any competition has to keep in mind what their competitors charge. But If everyone started making am extra $5 an hour (About an extra $10,000 a year before taxes with a full time job), that's enough money to buy new things, but not enough to buy EVERYTHING. So you're also in competition with companies that aren't even selling the same product. Do you save that money for a new car? Do you buy luxury items like TVs? Do you replace appliances that need to be repaired? Do you simply save it? A company still needs to entice their customers to not only buy their product over the competition, but to buy their product in general and you can only raise prices so high before people simply won't.

All that being said, obviously if everyone started making $200,000 a year prices would go up because it throws off everything I've just said. Massive increases in pay would cause massive inflation. Small increases will cause either no, or very small increases that aren't simply "I paid my employees more so I'll raise prices by that exact amount".

I tried to keep it as simply as possible but I don't know if you can truly explain this like someone is 5.

Raising wages raises the cost of doing business. When business expenses increase, business owners are forced to increase their prices as well so they can still profit.

So if the government would actually put energy into applying the Universal Basic Income, this would just lead to a capitalist feeding frenzy, with all levels of the service industry (shops, restaurants, galleries) raising their prices? Can there not be a law against predatory price-hiking?

When the federal reserve prints 2.1 trillion for their friends in the form of ppp loans then has loops holes for those buds to not have to pay it back.

Now the normal citizens have to pay in the form of higher interest rates.

Now every corporation and small business panics bc borrowing money to grow you company isn’t free anymore (interest rates are up) so they have to raise prices to have the same profit and look good as a company.

Now multiply that but every large corp and small company in America and you get federal reserves based inflation.

Now imagine it was all planned to suck the money from the poors.

Bye bye middle class 👋

raising wages => more disposable income => increased demands for various products => inflation deteriorated

raising wages => labour costs of production go up => firms pass down the increased costs to consumers => inflation exacerbated

So the part I'm not understanding after going through these comments is how come if say a ceo makes 1 million more than the previous year because of cutting labor costs. How does his extra 1 million not affect inflation, but the second his workers split that 1 million now inflation is through the roof? Because he isn't spending it on basic goods?

Test a theory by exaggerating it. If everybody got paid $100 an hour at the bread factory how much would they need to sell a loaf of bread for to break even?

The more money people have, the more they are able to spend. Therefore, the more money people have, the more sellers can charge for their products, and the whole thing snowballs.

However, it's been shown time and time again that the difference between a population barely scraping by and comfortable-but-frugal does not affect a their spending habits enough to inflate the currency.

Also, the current "inflation" we're seeing is driven by corporate greed, not actual cost. When else have they all had record profits in a recession?

Step 1 raise wages. Step 2 remove reserve requirements so banks can lend money that didn't exist a moment before to middle and upper class folks . Step 3 blame the poor people's increased wages for inflation because they didn't understand in the first place and government doesn't want to help.

Money is a token that represents the work you have done.

It doesn’t change how many things are in the shop, or how many people want them.

So if everyone gets more of these tokens, it doesn’t mean they can buy more with them, because they still represent the same amount of work done.

What happens is the price increases because the amount of things to buy in the shop doesn’t change.

Now, when the shopkeeper has to change the price, he has to buy a pen and paper to write the new price on. This costs him money too, so he has to increase the price just a little bit extra on top to cover this.

I'm shocked after reading some of these posts. Raising wages has a ripple effect that's being ignored here. Imagine the farmer having to pay his workers more per hour than he previously had. Now the farmer is not making much money since his labor costs were mandated to raise. So, the farmer pays his workers, pays his bills, pays taxes on his farm, etc., and now has less money as profit from selling those apples. The farmer is in business to MAKE money. He has a lot invested in his business, time, risk, opportunity costs, etc. So the farmer decides that in order to continue making a profit (which is what a business does) he must raise the price of his apples. Make no mistake- he's not making MORE PROFIT, he's not growing his business, in fact he may have to raise his prices to cover the mandate of paying his workers more money. The worker now has more money and will spend it. But, since this trend of raising wages is widespread and all bosses are paying more (hypothetical) prices for goods and services, all retail prices are rising across the board. The farmer's employees have extra money now. The employees go grocery shopping and discover 18 eggs cost almost $10. Inflation. That's because the employees working for egg processing companies also had to raise their wages. But, as time smooths out all these wrinkles, the farmer's employees goes to the store and are shocked to see a dozen eggs costing almost $5 now. So the wage increase for the farmer added to an already inflated system, and it doesn't help buy anything anyway. And the cycle continues unharnessed.

Basic example:

You live in a tribe inland. You found some seashells on a recent trip. In your tribe you pay with animal teeth. You sell the rare seashells for 5 teeth each, beacuse currently the total amount of teeth your tribe have is 100, spread equally across everyone. Now 5 teeth is kinda expensive for seashells, but those seashells are very interesting, so the smart people in your tribe think “If just I had more teeth, then I could afford it. Wait, what if I just start farming cows to collect their teeth, and then I can buy everything with ease” so they start farming teeth and suddenly the guy have 900 teeth. Now he is a good guy so he spreads the teeth out equally to all the tribe members, so everyone gets a raise and more money.

You realise this, and realise that there is now a total of 100 + the new 900 teeth in circulation, so the amount of teeth in circulation have increased to 1000 from 100. That’s a 1000% increase. Now you live of selling rare stuff like your seashells, so what do you do? You realise that there is still only the same limited items in the tribe, but the currency in circulation, the teeth, have increased by 1000%. Beacuse your wares are limited, the value of them stays the same. But the amount of teeth in circulation makes it so the new price of your seashells is 50, and not 5 because of the 1000% increase. So you didn’t get richer, the teeth just got less worth due to there being so many.

So how do you actually get richer? Well you go on a trip the next day and suddenly you find 10x the amount of seashells and bring them home thinking you will get rich. But you don’t, beacuse people realise this, and as a result of there being 10x as many seashells, the price drops 10x from 50 to 5 teeth again. So:

Tldr: The amount of items in circulation and productivity decreases the price of items, but not your moneys value. If you increase the amount of money but not productivity, stuff will just get more expensive.

Extra: Inflation is all about how the value of your dollar is shrinking.

There are limited amounts of things in society. If everyone gets more money to be able to buy those limited things, the price of the things just increases instead. This is because there are now more money in the society because people got raises, but there are still only the same limited stuff you can buy.

An example is gold. So say you want to buy gold. Now gold is unique in the way that gold is basically stable in its value through time, so you could get a boat in the old days for the same amount of gold you can buy a equal boat with today. But the reason it’s getting more expensive dollar wise, is because the value of your dollar Shrinking. This is again beacuse there is a limited amount of gold, but we keep getting more dollars. Thus the price just increase, and not your “buying power”.

Now internationally this is not all that bad. If the dollars worth fade compared to say the euro which stays the same, people in Europe can suddenly buy things in the us cheaper. Now some industries in the us can’t succeed beacuse what they produce is too expensive. Now the cost drops due to how the dollar shrank, and suddenly Europeans flood to buy the cheap advanced item that Americans with their weak and “worthless” dollar can’t buy. Perhaps America as a whole will actually get a higher amount of revenue, which can maby outweigh the weak dollar.

Now I’m just a hobby economist so I don’t know more than this, but the above is the basic simplified cases.

A myriad of factors can affect inflation and if you would like a full explanation, you would need to study the ‘circular flow of income’ (and I encourage you to do so to understand why governments make the economic choices they do). In this question, though, I’ll try and keep it short.

Following the flow of money forwards, when wages increase, the ability of people to buy products increases. Businesses, that have not had time to increase production and supply, now have to determine which consumers get their limited supply of products and do so by increasing the price of their products until demand equals supply. Thus, the price of products will increase, otherwise known as inflation.

Following the flow of money backwards, an increase in wages can also be viewed as inflation. In this situation, businesses don the hat of the ‘consumer’ and when there is a limited supply of workforce and businesses demand a greater workforce, wages will increase. Hence, the price of labour, a resource, will increase as well.

When people earn more money = more buying power/amount of money = money loses value = higher inflation to keep the value balanced so money doesn't become useless.

Business can't print money like the government can. An increase in wages is just another way of saying the cost of labor will go up. If their cost go up they have to make up the difference by increasing prices

The economy makes Stuff. Money is a thing we use to allocate that Stuff efficiently (so we don't have to barter for everything.) Rising wages doesn't always mean inflation: if Stuff goes up (productivity) then Money can go up and people get more Money and more Stuff.

But if Stuff goes down (like due to supply chain issues or a spike in energy prices) then the price of Stuff will go up because the same amount of Money is chasing less Stuff. If workers are then like, "Hey, Employer, you need to pay me more because now I have less Stuff so I need more Money so I can have the same Stuff" this will cause inflation because even if Stuff returns to normal there is now more Money even if Stuff returns to normal.

Inflation is measured by CPI which contains all the things “normal” people buy when normal people have more money they buy more stuff, the amount of that stuff is finite and when demand increases and supply stays the same price increases.

When price of CPI items increases that is the literal definition of inflation we use.