Controlling workers’ expectations is key to avoiding a permanent wage\u002Dprice spiral. Read more.
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The focus on managing workers’ expectations is not necessarily fair. Workers’ wage demands didn’t cause the spike in inflation. Massive fiscal and monetary pandemic stimulus did, combined with supply chain problems and the big increases in oil, natural gas, and fertilizer prices sparked by the war in Ukraine. All that may be true but, fair or not, controlling workers’ expectations is still key to avoiding a permanent wage-price spiral.
Unfortunately, it’s not just expectations that influence people’s wage demands. Past inflation also has an effect. Workers whose wages have not kept up with inflation will demand higher wages as a catch-up, no matter what they expect in terms of future inflation. These catch-up demands are now baked in. Going forward, catch-up wage agreements will bring higher wages, which will get passed forward into prices.
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