The key question of the degree of wage-price indexation

OECD countries are currently experiencing an oil shock: sharp rises in oil and natural gas prices and therefore in energy prices. As long as the degree of wage-price indexation remains low, this shock will lead to only a transitory rise in inflation: there will be no wage-price spiral and demand will be weakened by the fall in real wages. This is what happened after the subprime crisis. But if high wage-price indexation did reappear, then there would be another wage-price spiral, like in the early 1980s, and the high inflation would set in for a sustained period, forcing central banks to react. The key question then is whether there have been any changes in the functioning of the labour market or in the formation of household inflation expectations that could bring back high wage-price indexation . For the time being, wage earners’ bargaining power does not seem to have risen.