> Isn't part of inflation that this doesn't work at scale? As in, if everyone gets higher wages, bigger bonuses, and more money is being poured into 401ks, inflation gets even worse? Or do wages become a rounding error when you add in stuff like real-estate and loans?
Kind of, but wages are only part of the cost of goods.
Assuming wages represent 30% of the cost of goods (i.e. 30% labour, 20% property/fixed costs, 50% materials) and wages go up 10%, then they only impact the cost of goods by 3% (thus 3% inflation might be expected at a simplistic macro level).
Then there is a sort of loop where the 3% inflation could encourage another 3% wage inflation, but that only affects the cost of goods by 0.9% and so on. When you follow this theory, that 10% wage inflation only turns into an additional c4.5% increase in inflation (or 15% if you include the initial 10%).
This is overly simplistic and there are other levers at play, which is why lots of economics calculations often have continous simulations which can show the impact of these feedback loops (Inflation causes wage increases causes inflation causes wage increases).
Kind of, but wages are only part of the cost of goods.
Assuming wages represent 30% of the cost of goods (i.e. 30% labour, 20% property/fixed costs, 50% materials) and wages go up 10%, then they only impact the cost of goods by 3% (thus 3% inflation might be expected at a simplistic macro level).
Then there is a sort of loop where the 3% inflation could encourage another 3% wage inflation, but that only affects the cost of goods by 0.9% and so on. When you follow this theory, that 10% wage inflation only turns into an additional c4.5% increase in inflation (or 15% if you include the initial 10%).
This is overly simplistic and there are other levers at play, which is why lots of economics calculations often have continous simulations which can show the impact of these feedback loops (Inflation causes wage increases causes inflation causes wage increases).