Wage Growth Defies Cooling Labor Market, Risking Slower Disinflation
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Central banks have made progress on reducing inflation, but wage growth remains high at around 5%, complicating further disinflation.
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Falling labor demand has so far not translated into lower wage growth as central bankers had hoped.
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Unemployment remains low despite cooling demand, but wage growth shows little sign of moderating.
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There is a risk of persistent high inflation if current high wage deals lead to higher inflation expectations and even higher wage demands.
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Wage growth may just be slow to respond to declining labor demand, suggesting disinflation could take frustratingly long but should still happen.