Wage-Price Spiral Unlikely, RBA Research

In today’s quarterly RBA bulletin, there is an article, “Wage-price dynamics in a high-inflation environment: the international evidence”, that concludes that a wage-price spiral is unlikely. At the end, there is a warning – if rates don’t increase enough and high inflation becomes entrenched, then we could see a wage-price spiral after all.

• Importantly, it concludes that due to inflation targeting, inflation expectations are not only anchored but also lower from 2023 on. The market expects them eventually to return to target, internationally. As a result, this should be reflected in wage bargaining and the ability of firms to pass on higher prices.
• The RBA research looks at the causes of current high inflation, wage developments and the possibility of a wage-price spiral across the OECD.

https://www.rba.gov.au/publications/bulletin/2022/sep/wage-price-dynamics-in-a-high-inflation-environment-the-international-evidence.html