The role of wages in the pick-up of inflation

José Gumiel and Elke Hahn

Economic Bulletin Boxes, 2018, vol. 5

Abstract: In current forecasts and projections, a pick-up in labour costs is considered an important precondition for a sustained increase in underlying inflation. However, the signals provided by different labour cost indicators have been mixed for some time. While wage growth as measured by compensation per employee or by compensation per hour worked has clearly strengthened over the past two years, unit labour cost growth, i.e. wage growth adjusted for productivity growth, has remained rather flat over the same period. This begs the question: which labour cost indicators provide the relevant signal for the pass-through to, and the outlook for, underlying inflation? This box tries to shed some light on this issue by analysing the transmission of two different types of macroeconomic impulse, namely certain kinds of supply and demand shock, in the context of the New Area-Wide Model, and by comparing the results with the patterns of development observed in the recent past. JEL Classification: E31, J30

Keywords: euro area inflation; pass-through of wages to prices (search for similar items in EconPapers)
Date: 2018-08
Note: 854549
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Citations: View citations in EconPapers (12)

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