What causes a wage price spiral and what can it lead to?

A wage-price spiral occurs when rising wages lead to increased production costs, prompting businesses to raise prices to maintain profit margins. As prices increase, workers demand higher wages to keep up with the cost of living, perpetuating the cycle. This can lead to sustained inflation, where inflation expectations become entrenched, making it challenging for policymakers to stabilize the economy. Ultimately, if unchecked, it can result in reduced purchasing power and economic instability.