IMF Expert Says Risks of a Wage-Price Spiral are Limited
Dr. Albrizio discussed the implications of the observed rise in inflation in many economies during 2021
Dr. Silvia Albrizio, an economist at the International Monetary Fund Research Department, presented a report entitled “Wage Dynamics Post-Covid-19 and Wage-Price Spiral Risks” to an audience of AKSOB students and faculty on Wednesday, October 19, 2022.
In her presentation, Dr. Albrizio discussed the implications of the observed rise in inflation in many economies during 2021. She reported that while available data indicate that nominal wage growth has so far generally stayed below inflation, the inquiry concerns the likelihood of the emergence of a sustained wage-price spiral.
Based on a mix of empirical and model-based analyses, the study presented in Chapter 2 of the IMF World Economic Outlook 2022 finds that the chances of persistent wage-price spirals emerging appear limited since the current inflationary shocks are originating outside the labor market, falling real wages are helping to slow inflation, and monetary policy is tightening more aggressively.
Moreover, it demonstrates how front-loaded and well-communicated monetary policy tightening is the key to lowering the risk that expectations and inflation will become de-anchored.
A short live video explaining the main findings of the study can be viewed on IMF Analytical Corner.