![]() Yet several factors mitigate those price increases for lower-income earners. Income Tax Calculator: Estimate Your Taxes ![]() All three problems are theoretically possible, but there is little evidence that they have come to pass. ![]() This higher demand pushes prices up even further and sets off a vicious cycle of ever-faster price increases. If people think that goods and services will be even more costly in the future, they will want to buy things now, before prices increase. Third, higher inflation can lead people to change their spending behavior in ways that drive inflation even higher. This scenario assumes, though, that companies cannot or will not absorb higher labor costs by, for example, temporarily reducing their profits to keep their customers. In that scenario, workers receive wage increases that raise costs for businesses, which in turn increase prices again. Second, higher inflation – faster price increases – can become a self-fulfilling cycle if workers have sufficient sway to demand higher wages to offset higher prices. They have limited bargaining power and often see wage gains later in recoveries than higher-wage workers do. This can be particularly worrisome for low-wage workers. First, prices can grow faster than wages and thus make it harder for families to pay their bills. There are several reasons to worry about inflation, but three stand out.
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