Inflation has held up better than we had anticipated in recent months. The surge in spare capacity suggests that it could weaken more sharply as social distancing measures are relaxed. But we only expect underlying inflation average -0.2% next year. One key reason is that we expect the labour market to remain tighter than it was during the period of falling prices that started in the mid-1990s. Indeed, it’s striking that wages per worker aren’t falling as strongly as they did after the global financial crisis despite a larger slump in output. And due to the unprecedented slump in working hours, hourly wage growth is the strongest it has been since the mid-1990s.
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