Moreover, weak wage growth could also reflect previous downward wage rigidities: difficulties in reducing wages during earlier stages of the crisis may result, symmetrically, in a slower upward adjustment of wages as labour market conditions improve.5 Overall, while we are certainly seeing a firming, broadening and more resilient economic recovery, we still need to create a sufficiently broad and solid information basis to build confidence that the projected path of inflation is robust, durable and self-sustained.
Moreover, the high rates of inflation were accompanied by an economic slowdown in the 1970s (reflected in the coining of the term “stagflation”) and were followed by unusually sharp economic recessions in the early 1980s and early 1990s. The idea of an exploitable long-run trade-off between inflation and unemployment was effectively demolished by this experience.