What is built-in inflation associated with?

Built-in inflation is primarily associated with wage increase expectations. This type of inflation occurs when businesses anticipate rising costs, including wages, which leads them to increase prices to maintain profit margins. The process begins when workers expect that prices will continue to rise, prompting them to demand higher wages. If they successfully negotiate these wage increases, businesses face higher labor costs and, as a result, may raise their prices further to cover these additional expenses. This cycle can perpetuate inflation, as rising wages lead to increased consumer spending and continued upward pressure on prices.

Understanding built-in inflation requires recognizing the self-perpetuating nature of wage-price spirals, where expectations of inflation drive wage demands, which in turn contribute to ongoing price increases in the economy.