[Note 1] History has shown that this switch is typically sudden. But once this shift occurs, inflation would remain above the ECB’s inflation target for a prolonged period, even when there are no additional inflation shocks. Taming inflation will then become increasingly more difficult and costly. In monitoring risks of second round effects, central banks pay close attention to wage developments and inflation expectations.
Subject to the caveat that information on wage formation is not as granular and timely in the euro area as it is for example in the United States, current wage developments do not reveal clear evidence of a wage-price spiral in the euro area. Although nominal wage growth has been picking up, its pace is not sufficient to keep up with rising consumer prices.