Wage and Price Inflation: An Industry-Level Study

Shira Buzaglo-Baris ()
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Shira Buzaglo-Baris: Bank of Israel

No 2024.09, Bank of Israel Working Papers from Bank of Israel

Abstract: This paper investigates the effect of wage inflation on price inflation and vice versa, using industry-level data from Israel for identification. Various methodologies are employed to evaluate the wage inflationary effect, which yield consistent estimates of the pass-through from wage to price inflation. The findings suggest that a 10% increase in monthly wages is associated with a 1%-3% cumulative rise in prices a year ahead, an effect that gradually decreases in the following months. The analysis is extended to include the reversed effect of headline inflation on wages, thereby completing the wageprice spiral perspective. I find that within a year wages slowly adjust to catch up with an inflation shock. Lastly, the paper presents some evidence of a stronger relationship during the aftermath of the COVID-19 pandemic, albeit with considerable uncertainty. To a certain degree, the results indicate that labor market inflationary pressures may be higher than previously thought.

Keywords: Wage-price spiral; pass-through; inflation dynamics (search for similar items in EconPapers)
JEL-codes: E24 E31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2024-09
New Economics Papers: this item is included in nep-mon
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