2015 Q1 wages update (or, there is not much inflation)
What do you expect to happen with a 2% inflation target, if productivity growth falls from 2% per annum to 0% per annum? You expect tight money. Nominal wage growth must be pushed down from 4% to 2%. If nominal wages are sticky you’ll need a nasty blast of unemployment to achieve this. But the labour market will adjust eventually to the new equilibrium. This is the EARN08 table which tracks one measure of nominal hourly wages, updated today, steadily tracking below 2% average growth since 2009.
Alternative view using nominal weekly wages, with the arrow highlighting that dangerous inflection point in Britain’s inflationary wage/price spiral which prompted Carney and other MPC members to insist last year that Bank Rate would soon rise:
Of course everybody knows that productivity growth will pick up to 2% per annum again, slash return to the pre-crisis trend, and then wages will rise 4% per annum again, slash soar into the heavens, and everything will be just fine. See also, Bank of England productivity forecasts today.
Welcome to Britain, have a nice day!