Assessing the inflation threat from EM labour markets

Labour markets look very tight in Central Europe and a handful of other EMs (particularly in Latin America), and we think that wage growth is unlikely to fall far enough in these countries to bring inflation back to target in the near future. One consequence is that their central banks will probably deliver less monetary easing this year than most are currently expecting. In contrast, labour market conditions are unlikely to prevent inflation from falling back to target in much of Asia as well as South Africa.