We expect, though, that paying more will eventually become part of firms' response. Wage growth, when it comes, will tend to boost labour costs per unit of output. Despite firms' reluctance to raise prices, margins cannot be squeezed forever. Higher costs will therefore boost price inflation over time.
A number of important parts of the CPI basket, including many services, have a large labour component to their input costs. These are the areas where wage pressures can be expected to show up most clearly as higher inflation. Working against this effect, though, will be the ongoing effects of heightened competition in retail.