why does low unemployment cause inflation?

Question

why does low unemployment cause inflation?

In: 6

Answer 1

All the replies so far have only mentioned that more people working means more money in the economy, pushing up prices

There is also the labour market side of this. In theory, when there are fewer unemployed people, wages go up because employees have more ‘power’ to negotiate higher wages. If companies have to pay higher wages, then they pass those costs on to the consumer through higher prices.