- Record-high inflation in advanced economies is turning up the heat on central banks. With average wages set to rise significantly in 2022, they face a difficult choice: overlooking the overshoot to protect the post-Covid recovery or tightening quickly to stave off a potential wage-price spiral that would add fuel to the fire.
- While we expect inflation to recede by 2022 as pandemic-related disruptions ease, if we were to experience sustained rising prices, the UK and France could be most at risk of a wage-price loop materializing in end 2022 and 2023, respectively. We find that, in this risk scenario, the wage-price loop could push inflation up by +3pp in the UK and +1pp in France by end-2023.