- Evidence of overheating in the domestic economy, for example through
wage-price spirals, inflation overshoots, and adverse effects on household and corporate balance sheets.
But in the developing world, these
wage-price spirals could turn very nasty, and policymakers there often seem reluctant to deal with the underlying causes.
- Negotiators will look at the total picture and will take into account the economic situation and the need to avoid inflationary wage-price spirals
In a press release, dated 1 July, it responds to the recent warnings from the European Central Bank against wage developments leading to an inflationary wage-price spiral. According to the ETUC, "hiking interest rates to combat imaginary wage inflation is a serious mistake and risks intensifying the economic slowdown and the financial crisis".
Clearly, high inflation is hurting local enterprises in the form of high input costs, while the overall cost of living has zoomed, triggering
wage-price spirals.
European economies, however, have stronger unions and institutional arrangements that may cause them to be more prone to wage-price spirals.
Hence, oil price boosts are more likely to trigger a wage-price spiral in Europe, whereas in the United States workers are more likely to absorb higher oil prices through higher fuel prices and increases in other energy intensive goods and services.
