No it isn ' t . It is based on suppliers not being able to keep up with demand because they don ' t produce goods , particularly perishables , that they do not think they can sell . By the time supply catches up with demand the inflation has already happened . Again , assuming existing production facilities are operating at full capacity . In the market described prices are set by demand , so this simply isn ' t relevant . They still sell all their goods if they increase prices . Depends on the choice available to consumers , given that we generally now have a good choice of products that are functionally identical in most markets e . g . many tiers of washing machines , but they all essentially do the job it ' s not a stretch to assume consumers will switch to a cheaper alternative if one supplier increases their prices , particularly at the incomes we are discussing . If a companies main aim is to make a profit , then I would argue that increasing prices before output is unlikely otherwise they risk losing market share . Only when supply takes time to catch up with demand , which is the case on most of the key goods and services that people not earning enough to save spend their money on . As long as there is spare capacity and unemployed persons with the necessary skills then expanding supply shouldn ' t be a bottleneck . With increasingly automated production you could also argue that you might not even need extra workers , depending on the business of course . No it doesn ' t because the higher wages haven ' t come about through an improved economy as a result of innovation , technical advance or growth . They are entirely inflationary . Higher wages help drives those things . It ' s no coincidence that both productivity and growth are low . Why should a business invest in improving its productivity when demand is depressed ? Wages aren ' t going anywhere , why bother to try to reduce your spending on wages by taking a risk and investing in automation for example or other innovations ? Why improve your ability to supply goods if you cannot make a profit from doing so ?