This could adversely affect prices and construction activity of high-end housing in such states. If the economy continues to grow at an above-trend pace in 2018, the labor market should tighten further. In fact, I anticipate that the civilian unemployment rate will fall below 4 percent this year and reach the lowest level since at least 2000. If this scenario proves accurate, this should lead to further firming of wage growth. On this point, some wonder whether the relationship between tight labor markets and higher inflation has broken down. I have not lost faith in this relationship. As the labor market has tightened over the past few years, we have seen a discernible firming in the wage inflation trend from 2 percent to around 2½ percent.5 Also, data at the state level indicate that states with lower unemployment rates tend to have firmer wage trends. This supports the case that tighter labor markets tend to be associated with higher wage growth. As the labor market tightens and wage growth firms further, I would expect these conditions to push up price inflation, particularly for services. Research by the New York Fed has found that prices of manufactured goods do not appear to be sensitive to labor market tightness.6 In contrast, tighter labor markets tend to be associated with higher price inflation for services. This difference presumably reflects several factors. First, prices of manufactured goods are determined in global markets, whereas prices for most services are determined locally.
I would now like to lead you through the details of our role in growth and hope that by the end of our talk you will have gained firmer belief that Thailand’s policy makers are committed to the country’s long-term growth. My talk today will cover the two roles that the Bank of Thailand plays in building sustainable growth. Firstly, I would like to describe the ongoing role of economic stabilization, as stability is a prerequisite for sustainable economic growth in the long term. Secondly, I will address growth opportunities available to Thailand and the Bank of Thailand’s role in developing the financial structure that enables the capture of these opportunities. Due to necessity as well as design, several structural changes are now underway in Thailand, and the Bank of Thailand aims to facilitate the transformation of these changes into sustainable long-term growth. Ladies and gentlemen, When businesses go about their daily activity, they not only produce goods for consumption today, but they also innovate and improve their tools of trade in order to produce more and newer goods in the future. When the economy enters a long slump, these improvements are foregone and future growth potential is diminished, a situation known as hysteresis. Therefore a smooth growth path is desirable for sustainable growth. This brings us to the first role of the central bank in this talk, safeguarding stability and balance in the economy. In particular, the Bank of Thailand monitors three facets of stability: growth stability, price stability, and financial stability.