Inflation and labour markets


Inflation shot up in both emerging market economies (EMEs) and advanced economies (AEs) in the wake of the Covid-19 pandemic. While labour market developments were not a key source of the surge, they could become important for the persistence of inflation and, thus, the path of disinflation. Despite this, there is comparatively little work on how labour market developments affect inflation in EMEs, quite in contrast to a substantial body of work in AEs. Instead, attention has mostly focused on other inflation drivers, for instance exchange rates. To fill this gap, the Bank for International Settlements dedicated its annual meeting of emerging market Deputy Governors to the topic of “Inflation and labour markets in the wake of the pandemic”. The meeting was held in Basel 16-17 March 2023.

The current volume contains a background paper by BIS staff as well as contributions by the participating central banks. Using the responses to a survey of EME central banks, the BIS background paper analyses the structure of labour markets in EMEs, wage formation and the relationship between wages and inflation. While there are important parallels, there are also notable differences across countries, both within and between regions. For example, a few countries feature strong unions and collective bargaining, while these are mostly absent from others. Such parallels and differences are also apparent in the central bank contributions, which dig deeper into individual country cases. 

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