While wage dynamics in the euro area have so far remained moderate, it would be imprudent to observe current developments without asking oneself what might happen in the future. In this respect, several reasons lead to the conclusion that a price-wage spiral is less likely than it was in the past.
This is a relatively novel experience for us in Israel. The annual inflation rate since 1999 has averaged 1.7 percent, i.e., close to the 2 percent midpoint of the target range of between one and three percent. You probably all remember the beginning of the 1980s, with two- and even three-digit inflation, which reached more than 500 percent a year.