How is unemployment related to causes of inflation?

Inflation is a sustained rise in general price levels. There are several causes for prices to rise. When production costs, such as wages and raw material prices increase- cost-push inflation occurs. Inflation due to a rise in aggregate demand, or overdemand compared to supply in the long run, is known as demand-pull inflation. This could also be caused by economic growth leads to inflationary expectations. Unemployment refers to people able and willing to work, but unable to find a job. Increased demand causes prices to rise. This is an incentive for producers to increase their output. therefore demand for labour increases. This lowers cyclical unemployment in the long run. In the short run, there is an over demand for labour. This causes wage rates to rise. This is an incentive for people to find employment since the opportunity cost of leisure increases. Cost-push inflation occurs as wages are a large contributor to production costs. However, when unemployment increases (E.g.: 2007-9 recession), a higher percentage of the population has less disposable income. Therefore firms tend to have fewer sales and the government generates less tax revenue. This can be linked to lower consumer spending and investment. In the long run, this will lower demand and thereby lower demand-pull inflation. This creates deflationary pressure. In conclusion, decreases in inflation causes higher inflation whilst rises in unemployment cause lower inflation