Czech Central Bank Staff Warns That Wage-Price Spiral Risk Reached Historic Highs Last Year

CNB analysts write that their measures of the risk of a wage-price spiral reached all-time highs last year. The "calculated index of the risk of a wage-price spiral was above the estimate of the conditional 95th percentile in the course of 2022," while "last year, this percentile also moved above the neutral level consistent with the 2% inflation target." They add that "both suggest a major risk of a wage-price spiral, and the calculated index exceeding the 95th percentile was indicating the materialisation of this risk."

• Central bank staff used the observed data to create a forecast for 2023, which "shows an increased risk of a wage-price spiral" through the whole year. "The forecast for the percentile remains above its neutral level in the first half of the year, before falling slightly below it. The decline in the index is connected with restrictive monetary policy and, to a lesser extent, appreciation of the real exchange rate."
• These comments come from a pre-released analytical piece from the CNB's Spring Monetary Policy Report, which will be published in full on Friday. The central bank recirculated it on its main website today.