Rising wages no guarantee of end to deflation

The rise in base wages agreed upon in this year’s spring wage negotiations is far less impressive than some of the headlines suggest and is still consistent with real incomes falling. There is a good chance that workers will see bigger increases once bonus payments are taken into account but even so, this may not feed into inflation. Strong productivity growth and profitability that is near multi-year highs give employers plenty of room to absorb cost increases rather than raise output prices.