{
  "title": "Wage-Price Spiral Risks Still Contained, Latest Data Suggests",
  "publication": "IMF Blog, February 24, 2023",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2023/02/24/wage-price-spiral-risks-still-contained-latest-data-suggests",
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  "summary": "Wage gains remain broadly in line with past episodes, which didn’t tend to lead to sustained wage-price acceleration",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Persistent wage and price growth in the latest data may raise concern about a \"wage-price spiral\"—an outcome in which wages and prices feed on each other and accelerate over a sustained period, risking rising inflation and unanchored expectations.\n- The analysis updates earlier work highlighted in a paper and chapter of the October 2022 World Economic Outlook and extends the sample through the third quarter of last year.\n- The study examines a rich set of advanced economies going back to the first quarter of 1960 for some countries."
    },
    {
      "heading": "Historical analysis and key findings",
      "content": "- The study searched for historical episodes similar to the post-pandemic recovery dynamics in advanced economies.\n- Only a few past episodes with similar dynamics were followed by wage-price spirals, defined as sustained periods of both price and nominal wage accelerations.\n- In most historical cases:\n  - Nominal wages caught up while inflation ticked down over several quarters.\n  - Inflation-adjusted (real) wages gradually recovered.\n  - A sustained acceleration of both wages and prices was rare.\n- For the median economy in the sample, plotting recent wage and price inflation up to the third quarter of 2022 shows:\n  - Inflation last year rose more than during the sample of past episodes.\n  - Nominal wage growth has failed to keep up.\n  - As a result, real wages have decreased in most advanced economies in the sample.\n- Unemployment rates remained stable or fell in most countries as labor demand picked up after the pandemic-induced pause.\n- Tighter labor markets have coincided with nominal wage growth increases in most of the world; however, nominal wage growth has not been abnormally above what would be expected based on historical experience."
    },
    {
      "heading": "Implications and outlook",
      "content": "- Conclusion: wage-price spiral risks still appear contained.\n- Historical evidence suggests a plausible forward path:\n  - Increases in nominal wage growth can occur alongside a deceleration in consumer prices.\n  - This pattern would allow real wages to start growing again and recover some of the purchasing power lost last year.\n  - History indicates that such a recovery in real wage growth would not by itself signal the start of a wage-price spiral.\n- Monetary policy tightening followed most of the past episodes and helped keep inflation contained."
    },
    {
      "heading": "Policy observations and scenarios",
      "content": "- Observed policy reaction historically:\n  - Monetary policy tightening was a common response following past episodes with similar dynamics and contributed to containing inflation.\n- Scenario consistent with historical average:\n  - Nominal wage growth may remain elevated or pick up even while inflation declines, supporting a recovery in real wages without necessarily triggering a wage-price spiral.\n\n—This blog reflects research by Jorge A. Alvarez, John Bluedorn, Niels-Jakob H. Hansen, Youyou Huang, Evgenia Pugacheva and Alexandre Sollaci.\n\n---\n\n\n References\n\n- paper\n- World Economic Outlook\n- Jorge A. Alvarez\n- John Bluedorn\n- Niels-Jakob H. Hansen\n- Youyou Huang\n- Evgenia Pugacheva\n- Alexandre Sollaci\n\nSource: https://www.imf.org/en/blogs/articles/2023/02/24/wage-price-spiral-risks-still-contained-latest-data-suggests"
    }
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    "Authors: Jorge-Alvarez, Niels-Jakob-Hansen",
    "Published: February 24, 2023",
    "Persistent wage and price growth in the latest data may raise concern about a \"wage-price spiral\"—an outcome in which wages and prices feed on each other and accelerate over a sustained period, risking rising inflation and unanchored expectations.",
    "The analysis updates earlier work highlighted in a paper and chapter of the October 2022 World Economic Outlook and extends the sample through the third quarter of last year.",
    "The study examines a rich set of advanced economies going back to the first quarter of 1960 for some countries.",
    "The study searched for historical episodes similar to the post-pandemic recovery dynamics in advanced economies.",
    "Only a few past episodes with similar dynamics were followed by wage-price spirals, defined as sustained periods of both price and nominal wage accelerations.",
    "In most historical cases:",
    "For the median economy in the sample, plotting recent wage and price inflation up to the third quarter of 2022 shows:",
    "Unemployment rates remained stable or fell in most countries as labor demand picked up after the pandemic-induced pause.",
    "Tighter labor markets have coincided with nominal wage growth increases in most of the world; however, nominal wage growth has not been abnormally above what would be expected based on historical experience.",
    "Conclusion: wage-price spiral risks still appear contained.",
    "Historical evidence suggests a plausible forward path:",
    "Monetary policy tightening followed most of the past episodes and helped keep inflation contained.",
    "Observed policy reaction historically:",
    "Scenario consistent with historical average:",
    "[paper](https://www.imf.org/en/Publications/WP/Issues/2022/11/11/Wage-Price-Spirals-What-is-the-Historical-Evidence-525073)",
    "[World Economic Outlook](https://www.imf.org/en/Blogs/Articles/2022/10/05/wage-price-spiral-risks-appear-contained-despite-high-inflation)",
    "[Jorge A. Alvarez](https://www.imf.org/en/Blogs/authors?author=Jorge-Alvarez)",
    "[John Bluedorn](https://www.imf.org/en/Blogs/authors?author=John+Bluedorn)",
    "[Niels-Jakob H. Hansen](https://www.imf.org/en/Blogs/authors?author=Niels-Jakob-Hansen)",
    "[Youyou Huang](https://www.imf.org/en/Publications/Publications-By-Author?author=Youyou+Huang&name=Youyou+Huang)",
    "[Evgenia Pugacheva](https://www.imf.org/en/Blogs/authors?author=Evgenia+Pugacheva)",
    "[Alexandre Sollaci](https://www.imf.org/en/Blogs/authors?author=Alexandre+Balduino+Sollaci)"
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