Does the Consideration of Nominal Wage Growth Imply a High Level of Inflation Inertia or Persistence Compared to Consumer Price Inflation?

Abstract

We establish that nominal wage and consumer price inflation have six disinflation episodes and are highly synchronised. The trends show that nominal wage and consumer price inflation have trended downwards over the sample period. Nominal wage inflation trend has declined significantly post the recession in 2009 and is approaching the upper band of the 3–6 per cent inflation targeting range. Furthermore, real wage inflation has had eight disinflation episodes compared to the six episodes established for nominal wage and consumer price inflation. In addition, real wages have been consistently growing below the long-term average of 2.52 per cent since 2012Q1. It is the first time in history that such a trend in real wage growth has been observed.