How does raising wages worsen inflation ?
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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.
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