\u0022Once inflation is high, the pressure from wages is here,\u0022 U.S. Treasury Secretary Larry Summers warned. Read more.
Inflation peaked in double digits across much of the industrialized world but is expected to drop rapidly this year on the back of falling energy and commodity prices. However, core inflation will remain elevated as wage behaviour and companies’ price setting has fundamentally changed, Swiss National Bank Chairman Thomas Jordan said on the same panel.Article content
“It will be much more difficult to bring inflation from four per cent to two per cent,” he said. “We will see if that comes with a recession or not. Firms do not hesitate any more to increase their prices. That is different from two or three years ago and is a signal that it is not that easy to bring inflation back to two per cent.”
“We also see a change in the behaviour regarding wages. If you look at wage formation, this is very backward looking. Basically we take inflation from last year and we use this to set future salaries – the kind of fairness argument. Once inflation is high, the pressure from wages is here.” Summers warned: “It would be a grave error for central banks to revise their inflation target upwards at this point. Having failed to attain the two per cent target and having re-emphasized repeatedly the commitment to two per cent, to then abandon the target would do very substantial damage to credibility. If you can adjust once, you can adjust again.”Article content
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