How does unit labour cost influences inflation ?

Question

factors influences inflation

Answer 1

Depends on economies of scales. If 1 unit of labour = 1 output, then it will be very correlated and parallel.

Labour is required wages.

Rising wages pushes up the cost to produce a good, so prices have to rise in order to protect profits.

Rising prices = inflation.

Answer 2

Higher labor costs means higher income for workers who works, thus aggregate demand of this part is increasing (rightward shift) leading to higher equilibrium price level.

Higher labor costs presses on producers to reduce production due to higher marginal costs, thus aggregate supply falls (shifts left) leading to higher aggregate price level.