The phrase “wage-price spiral” tends to echo loudly during economic crises, often amplified by policymakers and central banks. It’s a gripping tale: wages increase, businesses raise prices to preserve profits, inflation gets worse, and so on. But compelling doesn’t mean correct.
Over the past few years, that story started to fall apart for many. In everyday moments—paying for groceries, renewing utility bills, or even watching rent go up—something felt off. Wages weren’t sprinting ahead. In actuality, they were obstinately falling behind.
| Topic | Inflation, Wages, and Economic Reality |
|---|---|
| Core Debate | Are wages fueling inflation, or reacting to cost pressures? |
| Real Wages (UK, US) | Dropped in real terms; earnings not keeping pace with prices |
| Corporate Profits | U.S. profits rose 42% (2020–2022); margins hit record highs |
| Alternative Approaches | Belgium uses wage indexation, avoiding a wage-price spiral |
| Key Insight | Profits, not paychecks, may be driving inflationary pressure |
Real wages in the UK fell sharply, by as much as 2.8% in the first few months of 2022. Inflation also exceeded wages for American workers across the Atlantic. Corporate profits, meanwhile, were not only increasing but also skyrocketing. In the same window, corporate profit margins in the U.S. reached levels unseen since the 1950s.
Remarkably, price increases continued despite wage restraint. They were not even slowed down by it. This is where things began to change. A term like “greedflation,” once dismissed as fringe, began gaining traction across boardrooms, think tanks, and even investment circles. Economists at Goldman Sachs noted that a significant amount of price increases in Europe were due to profits rather than labor costs.
The conventional inflation narrative was reexamined as a result. Some analysts started to see rising wages as necessary corrections—workers trying to recover lost ground in a pricing storm that wasn’t their fault—rather than as a threat.
Belgium, on the other hand, followed a different course. Its economy, notably export-driven and highly competitive, uses automatic wage indexation tied to inflation through a calculated “health index.” Critics foresaw disaster: a spiral would undoubtedly ensue if wages continued to rise in tandem with prices. It didn’t. Inflation in Belgium declined faster than many expected, even as real wages went up by nearly 3% in early 2023. That is remarkably similar to what some labor economists had long maintained: wage growth can be stabilizing if it is planned for and supported.
Belgian businesses were unable to just pass costs on to customers due to international pricing restrictions and competition. They had to absorb some of the impact—trimming profits rather than inflating prices. This type of adjustment is distinct. One that transfers the burden from consumers to shareholders and from households to businesses.
The main thesis—that profit can drive inflation—is no longer theoretical. It is becoming very evident in all sectors. According to research from the union Unite, corporate pricing strategies were responsible for nearly 60% of recent UK inflation. Food, energy, banking—industries that raised prices even as input costs stabilized or fell.
I remember one specific moment in late 2022, buying eggs at a local shop in North London. A dozen that cost £1.90 a few months before had jumped to £2.60. No outbreak of bird flu had occurred. Fuel prices were declining. When I asked, the clerk shrugged. “Prices simply keep rising.”
That shrug reflected something deeper: resignation. The public was being told that workers were the problem, while corporations quietly boosted dividends and profits. At that moment, it didn’t sit. It doesn’t now.
Rate increases and wage suppression are still justified by many policymakers. But that strategy, while academically defensible, has human costs. Supermarket prices do not decrease when interest rates rise. They reduce employment prospects. They slow wage recovery. They also undermine public confidence in equitable economic management, which is perhaps the most concerning.
An increasing amount of data points to the possibility that different instruments could be more efficient—and more fair. For instance, excess profit taxes on sectors that capitalized on crisis conditions could both cool price growth and fund wage stabilization. Public support for such policies remains strong. More than 70% of UK voters support price caps on necessities like food and housing, according to recent polling.
Equally important is the rebuilding of labor institutions. A notable illustration of how shared accountability can lessen conflict and increase resilience is provided by Belgium’s tripartite negotiation framework, in which wage paths are determined by the government, unions, and employers.
The UK, in contrast, has fragmented bargaining. The reinstatement of sectoral bargaining has the potential to significantly enhance wage equity without contributing to inflation. These frameworks aid in creating predictability and establishing expectations, which are precisely the goals monetary policymakers say they want to achieve.
The lack of public discussion about these mechanisms is startling. Headlines scream about disruption when workers go on strike for higher wages. When profits spike and prices follow, it’s met with silence or technical justifications.
But silence has consequences. People lose trust when they feel the system protects capital but punishes labor. Furthermore, it is extremely challenging to restore that trust once it has been damaged.
This is a case that needs to be made in the future. One that is based on both economic sustainability and equity. Households that can plan, save, and spend confidently drive healthy economies. Businesses that compete on quality, not pricing power, create stable markets. Fairly compensated employees are also less likely to burn out, retrain, or churn.
This isn’t about blaming success. Profit is a necessary engine of growth. But unchecked markups, disguised as inflation inevitabilities, distort the balance. It’s time to acknowledge that inflation is multi-faceted. The answers also have to be.
By reframing the debate, we gain space to explore smarter, more resilient policies. Collective bargaining, wage indexation, targeted price caps, and fair tax strategies are all remarkably effective ways to move forward.
Retaining wages is not the goal of progress. It’s about ensuring prosperity doesn’t leave working people behind. Because what precisely are we creating if wages are unable to keep up with the cost of living?
The story will be more important than ever in the months ahead. As inflation levels ease, and political campaigns heat up, choices around pay, pricing, and profit will shape not only economies—but the texture of daily life.
And in the end, that’s what makes this discussion worthwhile.
