Core-headline inflation divergence apparent, but no policy response (yet)
For many central banks targeting the elimination of spare capacity, income growth is one of their key metrics in judging the extent to which slack is existent. If wages are subdued, especially if headline inflation remains high (so real income growth is even weaker), then it is an open signal to stay lower for longer. Nonetheless, some central banks (the US in particular) are worried that structural shifts in labour markets will now cause wages to rise while overall spare capacity – based on labour market reports – remains high. Though most economies would envy Norway’s labour markets, Norges Bank may soon face a problem similar to the Fed, but with far less room to manoeuvre.
Read the full report: UBS