Second round effect

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Second round effects are price increases as a reaction to previous cost increases.

Second-round effects occur when employers and trade unions react to increased inflation and therefore agree on higher wages. There is a risk that companies will pass on their increased costs through prices and that inflation will gradually rise. One speaks here of a wage-price spiral . There is a risk of stagflation . "Once this process has started, the central bank has to intervene with brutal measures," says Roland Döhrn, economic director of the Rhenish-Westphalian Institute for Economic Research (RWI) in Essen.

This process is often triggered by external shocks. The oil shock in the 1970s triggered a noticeable increase in inflation. As a result, the unions achieved massive wage increases. Mass unemployment and a long sluggish economy were the result.

Second-round effects are observed in many areas (especially the economy). If, for example, a large employer moves to a new location, the increased purchasing power in the region can lead to a revival of the local economy, which in turn can have further effects.