Workers demand higher wages to compensate for their reduced purchasing power. Compelled to raise wages, producers increase their prices to compensate. Sometimes this happens mechanically because of wage indexing—contracts in which employers agree to increase wages with inflation. As is normal in such cases of price and wage indexing, a vicious cycle is established: the currency depreciates, internal prices rise, the increase of the quantity of paper money once more lowers the value of the currency, prices rise once more, and so on.
