A higher degree of wage flexibility would help to accelerate such desirable adjustment processes. BIS Review 112/2007  3  At the other extreme, some countries are to some extent catching up with others’ higher living standards and may, therefore, be experiencing some temporary differences in relative cost competitiveness, reflecting movement towards a new equilibrium.
Some other sources of persistent inflation differentials may, however, not be justifiable – for example differentials attributable to insufficient flexibility. In some economies, the combination of weak labour productivity growth and strong increases in nominal wages and salaries over a sustained period inevitably results in a significant loss of relative competitiveness.