In classical economic thinking, growth in prosperity is linked to labour productivity, labour supply, hours worked etc., while inflation is considered to be a purely monetary phenomenon – this is also called classical dichotomy. While monetary policy cannot be decoupled from labour market developments, the link to inflation has become weaker. This is often referred to as a flattening of the Phillips curve.
It is possible that wage outcomes will remain very subdued even in countries with strong labour markets. If this turns out to be the case, then it is likely that inflation rates will also continue to be very low and monetary policy very accommodative.