Faculty & Research

Wage Dynamics Post–Covid-19 and Wage-Price Spiral Risks

The Department of Economics at LAU is hosting a seminar titled: “Wage Dynamics Post–Covid-19 and Wage-Price Spiral Risks” by Dr. Silvia Albrizio, Economist at IMF.

Inflation has reached a 40-year high in some economies. Although wage growth has generally stayed below inflation so far, some observers warn that prices and wages could start feeding off each other, with wage and price inflation ratcheting up in a sustained wage-price spiral. This World Economic Outlook chapter examines past and recent wage dynamics and sheds light on prospects. Similar historical episodes were not followed by wage-price spirals on average. Analysis highlights that more backward-looking expectations require stronger and more frontloaded monetary tightening to reduce risks of inflation de-anchoring. Risks of a sustained wage-price spiral appear limited since underlying inflation shocks come from outside the labor market and monetary policy is tightening aggressively.