This evidence suggests the pulse of the Phillips curve has quickened as the labour market has tightened. Unlike over much of the past decade, estimated wage equations are now broadly tracking pay (Chart 5). A year ago, the Bank’s forecasts of average weekly earnings growth into mid-2018 was 2.5%. Wage growth in the year to 2018 Q2 was 2.4%. 13  All speeches are available online at www.bankofengland.co.uk/speeches  13  How are these pay developments affecting the monetary policy outlook? Inflation is currently above the Bank’s 2% target. That is entirely due to the effects of past external price shocks, notably sterling’s post-referendum depreciation. As these external effects fade, inflation is projected to be maintained at or slightly above its target by a slow build in domestic cost pressures, underpinned by a rise in wage growth. The rise in wages projected by the Bank is, to coin a phrase, limited and gradual. Private sector pay is assumed to rise from 3% currently to around 3 ¾% three years hence, or around 25 basis points per year. That is below the pace at which wage growth has built over the past few years. Over the same period, unemployment is projected to fall further below its natural rate, though again at a slower pace than over recent years. The path of domestic costs in the economy depends on developments in firms’ productivity, as well as in pay. Weak productivity means even low nominal pay increases can be inflationary.
It’s useful that governments look into that and look at the various tools that could be effective and which could correspond to the various goals that they want to pursue, including making sure that the policies followed by member states receiving EFSF support are aimed at restoring a sound fiscal and the appropriate competitiveness. 2  BIS central bankers’ speeches