OK, so here's my first ello post. I'll keep it short. I think this passage from the BoE's inflation report has been seriously ignored and suspect it could equally apply to the US.
"Wages in a well-functioning economy, normal economy, normalised economy - wages will exceed inflation - wages will exceed inflation. And they'll exceed inflation because productivity growth will be above zero, and so that unit labour costs growth will be consistent with the inflation target in the equilibrium that we never - to which we always aspire but never actually achieve. You know, you'll see nominal wage growth, let's call it around 4%; productivity growth around 2%; you know labour costs growth around 2%; margins, you know, at a normal level; then inflation bang on 2%. And everyone is happy; you have no questions except - you have just praise for the MPC, Richard.
So we've expected this pick-up; it's been in the surveys, we're starting to see it in the hard data…And we need it. We need it to get inflation back to target, because there are some pretty big disinflationary forces that are largely coming from abroad at this time."
So those arguing that wage growth of c.3% would be a prima facie reason for an earlier-than-expected rate rise (see e.g. Weale in UK, and Bullard/Plosser in the US) are basically barking up the wrong tree. Thoughts?