ECB's Lane: One-off shift in wages does not change the path of underlying inflation

Comments from the ECB chief economist:

• Tracking wage outcomes and differentiating between transitory and persistent changes will play an important role
• One-off shift in wages as part of an adjustment to a transitory increase in the price level does not shift the path of underlying inflation

This is really playing with fire. We've gone from transitory inflation in prices, to one-off wage-price spiral.

• An energy price shock can simultaneously raise headline inflation but exert downward pressure on the path of underlying inflation
• If the economy is close to the effective lower bound, it is vitally important to adopt forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched

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October 12, 2021 at 12:09AM
Adam Button
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