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Ostfold Travel on There is, however, a component of inflation that is related to the business cycle. During expansions, prices rise more quickly than during contractions. As an expansion takes hold, labor costs tend to rise, leading to an increase in prices charged by businesses (inflation). Then, once the economy reaches its peak, rising labor costs ease up, and there is less pressure on firms to increase their prices. Thus, during expansions, inflation tends to rise, and during contractions inflation tends to fall. This cyclical inflation rises and falls with economic activity, around a long-term structural inflationary trend (which itself rises and falls). Theories and policies of business cycles. Ostfold Travel 2016.