– Disinflation will be faster than expected, and the pressure on wages will be smaller – due to the economic slowdown – this is how the data on the increase in wages is commented on by Piotr Kuczyński, Xelion’s chief analyst, in an interview with Gazeta.pl.
The average monthly salary in the enterprise sector in February this year exceeded the expectations of experts. The amount is impressive at first glance, because – as reported by the Central Statistical Office – PLN 7,065.56 gross. The increase is gigantic, reaching – compared to last year – 13.6 percent. At the same time, it is lower than inflation, which amounted to 18.4 percent.
It sounds like a game of cat and mouse or tag, but such a picture of the economy may – according to some experts – herald a dangerous phenomenon. It is about the so-called second-round effect or so price-wage spiral.
An economist about the race of prices and wages. “The pressure on wages will be less”
Xelion Chief Analyst Piotr Kuczyński in an interview with Gazeta.pl, however, he does not fall into such pessimistic tones. – Do we have a second-round effect in Poland, i.e. a spiral of prices and wages? I think it’s way too early to tell right now,” he says.
,, Currently, we have two conflicting trends – high inflation and rapidly growing wages (but only in large companies and clearly below inflation), and on the other hand there is an economic slowdown and disinflation. The last two phenomena will slow down wage growth, and the first two will contribute to their growth
– said the expert.
,, In my opinion, disinflation will be faster than expected and the pressure on wages will be lower due to the economic slowdown, so the second round effect, if it occurs, will be negligible.
– added.
What is the “second round effect” or wage-price spiral?
If we were sure that the wage spiral is taking place, there would be a lot to worry about. This phenomenon may exacerbate inflation. It’s a vicious circle of wages affecting prices.
An increase in prices results in an increase in employee expectations. They demand increases from employers, which is associated with either lower profits or the need to increase prices. And the increase in the prices of goods and services is exactly what the Central Statistical Office measures every month, giving the amount of inflation.
In other words, the price-wage spiral is the process by which firms raise their prices due to inflation and are then forced to raise wage rates for workers. As the level of wages increases, their prices also increase and the aforementioned spiral closes. This is a strong cyclical mechanism that can lead to a constant rise in inflation. This spiral is so strong that its effects can be seen immediately or gradually build up over a period of several years.
The supporter of the thesis that the spiral is already winding up is prof. Marian Leg, former MPC member, economist and lecturer. – There was a conviction that there is no hell and there will be no inflation. Usually, when it comes to a paradigm, we start to deny it. That it’s harmless, temporary. Such a narrative was convenient for both banks and politicians. With ever-higher public debt, an increase in interest rates means problems because you have to pay higher interest. Central banks slept through the growth, and now they are in the corner, he explained already in 2021 in an interview with Gazeta.pl.
More economic information on the home page Gazeta.pl
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