In Italy, in some recently signed collective contracts it was agreed that parts of future pay rises will be revised downwards in the event that the inflation rate falls short of current forecasts; according to our simulations, a generalised adoption of this type of contract would significantly decrease the rate of growth of wages and this would in turn be reflected in the dynamics of consumer prices.
10. Very low inflation in the euro-area also depends to a large extent on the persistence of economic slack and high unemployment. In the euro area the negative correlation between unemployment and core inflation or the rate of growth of negotiated wages is very evident even from a simple descriptive analysis (Figure 2).