Faced with this combination – falling input costs and dwindling demand – we saw unit profit growth slow markedly in most sectors in the first quarter of this year. A more persistent inflation process But the second phase of the inflation process is now starting to become stronger.
Workers have so far lost out from the inflation shock, seeing large real wage declines, which is triggering a sustained wage “catch-up” process as they try to recover their losses. This is pushing up other measures of underlying inflation that capture more domestic price pressures – particularly measures of wagesensitive inflation and domestic inflation.