The question is then whether there will be enough offsetting influences in 1998 to prevent inflation from rising. One such offset is the virtuous cycle set in motion by the lower inflation in 1997. The lower inflation last year should moderate the cyclical pressure for higher nominal wages over 1998.
That is, the real wage increases produced by the lower inflation substitute for nominal wage gains that would otherwise have been required to achieve the higher path of real wages. The pattern in food, energy, computer, and import prices and in benefit costs will again be important factors shaping the inflation outlook this year.