With inflation stubbornly above our target for so long, some concerns have been raised about the risk of “second-round effects”, which could make high inflation even more persistent. These effects describe a situation where high inflation feeds into higher wages, implying increased costs for businesses, which would lead to higher inflation still.
Our current inflation projection accounts for some increase in wages building on historical regularities of pass-through from inflation to wages and further spillback mechanisms. And at present we are not yet observing stronger second-round effects than projected. At the same time, we are mindful that some ingredients for potential stronger effects are in place.