Given the recent growth of wages, it is crucial to understand how this will pass through to inflation. But coming to a robust assessment is not straightforward. Both economic theory and the empirical evidence tell us that this pass-through depends on many different factors. One consideration is that the structure of the economy is not constant over time.
Over the past few decades, we have been witnessing gradual changes in the economic environment, many of which can be traced back to the ongoing IT revolution. These changes have important implications for inflation and pass-through, too. One such change is the growth of e-commerce, or, as some call it, the “Amazon effect”.