The link between labor cost inflation and price inflation in the Euro Area
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Date
2020
Journal Title
Journal ISSN
Volume Title
Publisher
Banco Central de Chile
Abstract
To gauge inflationary pressures, policymakers generally pay close
attention to labor cost developments. A key reason has been the widely
held view that labor cost inflation (i.e., wage inflation adjusted for
productivity developments) is one of the main causes of price inflation.
From a theoretical perspective, this assumption represents the post-
Keynesian cost-push/price-markup view of the inflationary process
whereby wage increases in excess of productivity are seen as putting
upward pressure on prices, and wages are the exogenous variable
determining the future direction of inflation.
Description
To gauge inflationary pressures, policymakers generally pay close
attention to labor cost developments. A key reason has been the widely
held view that labor cost inflation (i.e., wage inflation adjusted for
productivity developments) is one of the main causes of price inflation.
From a theoretical perspective, this assumption represents the post-
Keynesian cost-push/price-markup view of the inflationary process
whereby wage increases in excess of productivity are seen as putting
upward pressure on prices, and wages are the exogenous variable
determining the future direction of inflation.
Keywords
INFLACIÓN