Wage-price dynamics: a negative spiral?

Analysis

Published: 02 November 2022

By: Wilko Bolt Dennis Bonam Gerbert Hebbink Maarten van Rooij Emmanuel De Veirman Maikel Volkerink

With today’s soaring inflation and decreasing purchasing power, workers will try to compensate for this loss with higher wages. As this puts downward pressure on profit margins, employers will in turn try to pass-through higher wages in prices. The risk that these dynamics between wages and prices will lead to a wage-price spiral is currently limited, according to this DNB Analysis. Nevertheless, caution is advised. Together with monetary authorities, the Dutch government and social partners must prevent inflation from gaining persistent ground.