Spring Meetings

Over 2021, inflation rose markedly in many economies, reflecting a mix of supply- and demand-side drivers as the recovery from the COVID shock proceeded. Although nominal wage growth has so far generally stayed below inflation, some observers have warned that prices and wages could start feeding on each other, with wage and price inflation continually ratcheting up over a sustained period. Aiming to better understand recent wage dynamics and wage-price spiral risks, this analytical corner first identifies past episodes with similar wage, price, and labor market dynamics to the conjuncture and studies if those episodes led to a wage-price spiral. Second, it presents empirical and model-based analyses of the recent drivers of wage and price development. Third, it uses a forward-looking, model-based scenario analysis to analyze how expectations formation processes shape prospects and interact with monetary policy actions.