How does raising wages worsen inflation ?
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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…
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