Economy: IMF sees limited risk of wage-price spiral

The International Monetary Fund (IMF) sees a low risk of a wage-price spiral due to high inflation.

Economy: IMF sees limited risk of wage-price spiral

The International Monetary Fund (IMF) sees a low risk of a wage-price spiral due to high inflation. Real wages will not have risen significantly in many economies in 2021, or will even have fallen, according to the IMF economic outlook on Wednesday. This development continued into the first quarter of 2022.

The risk that rising wages as a reaction to high inflation could drive prices up over the long term is "limited". On the one hand, this is due to the fact that the high inflation is mainly due to supply chain bottlenecks or high energy prices. On the other hand, the central banks are now pursuing a stricter monetary policy in the fight against inflation.

Similar episodes in the past were not followed by a wage-price spiral over a longer period of time, it said. While wages have risen, inflation has fallen at the same time. Eventually, this even led to an increase in real wages. There were exceptions in the USA in the 1970s. However, the further development now also depends on whether further unexpected shocks occur or not.

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