The longer the weakness in manufacturing persists, the greater the risk that other sectors of the economy will be affected by the slowdown as well. Risks to the growth outlook remain on the downside overall. Headline inflation remains well below 2%, while inflation excluding the more volatile food and energy components has been hovering around 1% for an extended period of time.
This indicates that the weaker economic outlook may imply a delay in the pass-through of wages to prices. Firms are absorbing increases in labour costs in their profit margins rather than passing them on to customers. Meanwhile, indicators of inflation expectations are at low levels.