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SF Fed On Growing Importance Of Inflation Expectations On Wage Setting

US
  • SF Fed research shows that the impact of inflation expectations on wage growth has increased from a coefficient of 0.12 (not statistically different from zero) in the pre-pandemic sample to a statistically significant 0.98, essentially a 1 to 1 pass-through, post-pandemic
  • In addition, with the pandemic, wages exhibit somewhat lower persistence, from 0.63 to 0.41, as would be expected when price inflation is not stable and feeds more directly into wages.
  • “The more inflation continues to grow, the more expectations will drift, and the larger the effect on price and wage inflation. Should this dynamic linger, one risks the makings of an inflation-wage spiral.”

Source: SF Fed

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  • SF Fed research shows that the impact of inflation expectations on wage growth has increased from a coefficient of 0.12 (not statistically different from zero) in the pre-pandemic sample to a statistically significant 0.98, essentially a 1 to 1 pass-through, post-pandemic
  • In addition, with the pandemic, wages exhibit somewhat lower persistence, from 0.63 to 0.41, as would be expected when price inflation is not stable and feeds more directly into wages.
  • “The more inflation continues to grow, the more expectations will drift, and the larger the effect on price and wage inflation. Should this dynamic linger, one risks the makings of an inflation-wage spiral.”

Source: SF Fed