Nominal wage growth in Denmark has so far been modest and outpaced by high inflation, putting real wage growth in negative territory. Amid still-tight labor markets, this has raised concerns about wage pressures going forward and the eventual impact on inflation. The analysis suggests that wage formation in Denmark has historically been partly backward-looking, and economic slack also has played a role. Given these, high inflation realized thus far and the tightness in the labor market implies that wage pressures are expected to remain elevated in the near term. Some of these wage pressures, in turn, are expected to be passed on to core inflation, sustaining high inflation. Thus, determined policies to fight inflation are important.

Denmark: Selected Issues

This paper investigates the response of consumer price inflation to changes in domestic fuel prices, looking at the different categories of the overall consumer price index (CPI). We then combine household survey data with the CPI components to construct a CPI index for the poorest and richest income quintiles with the view to assess the distributional impact of the pass-through. To undertake this analysis, the paper provides an update to the Global Monthly Retail Fuel Price Database, expanding the product coverage to premium and regular fuels, the time dimension to December 2020, and the sample to 190 countries. Three key findings stand out. First, the response of inflation to gasoline price shocks is smaller, but more persistent and broad-based in developing economies than in advanced economies. Second, we show that past studies using crude oil prices instead of retail fuel prices to estimate the pass-through to inflation significantly underestimate it. Third, while the purchasing power of all households declines as fuel prices increase, the distributional impact is progressive. But the progressivity phases out within 6 months after the shock in advanced economies, whereas it persists beyond a year in developing countries.

Romania has weathered the economic shocks from the pandemic, Russia’s war in Ukraine, and the resulting surges in energy and food prices relatively well. Growth has slowed down but is expected to remain fairly robust in 2023 and 2024, supported by investment. Inflation remains notably above target but has been declining steadily through 2023. Fiscal deficits remain too large, although the authorities adopted a fiscal package to limit spending and raise additional revenues.

This Selected Issues paper for Denmark shows that a demographic shift will have several impacts on the economy. The decline in the relative size of the labor force will result in relatively fewer goods produced. This effect will be particularly strong, because a large portion of the current baby-boomers are in their peak earning years, and their retirement will have a dramatic effect on productivity and on overall production. Demark has imposed a restrictive policy requiring that immigrants prove they have a job that meets wage and working condition standards before getting a work permit.

Inflation rates rose sharply in the Philippines during 2018. Understanding the demand and supply sources of inflation pressures is key to monetary policy response. Qualitatively, indicators have pointed to evidence of inflation pressures from both sides in 2018, with the supply factors, by and large, associated with commodity-price shocks and demand factors deduced from gleaning at the wider non-oil trade deficits seen in the Philippines. Quantitatively, we deploy a semi-structural model to decompose the contributions of various shocks to inflation. Our main findings are (1) supply factors (mainly global commodity prices) played a prominent role in explaining the rise in inflation in 2018; (2) demand factors also contributed to inflation in a non-negligible way, justifying the need for tighter monetary policy in 2018; (3) the size of the estimated output gap (an important indicator of demand pressures) could be larger, when considering the widening trade deficits in 2018; and (4) a delayed monetary policy tightening can be costly in terms of higher inflation rates, requiring larger and more aggressive interest rate hikes to bring inflation under control, based on a counterfactual exercise.

The remarkably successful gold standard before 1914 was the first international monetary regime. This book addresses the experience of the gold standard peripheries; i.e. regime takers with limited influence on the regime. How did small countries adjust to an international monetary regime with seemingly little room for policy autonomy?

This paper studies inflation dynamics during 25 historical episodes in advanced economies where output remained well below potential for an extended period. We find that such episodes generally brought about significant disinflation, underpinned by weak labor markets, slowing wage growth, and, in many cases, falling oil prices. Indeed, inflation declined by about the same fraction of the initial inflation rate across episodes. That said, disinflation has tended to taper off at very low positive inflation rates, arguably reflecting downward nominal rigidities and well-anchored inflation expectations. Temporary inflation increases during episodes were, in turn, systematically related to currency depreciation or higher oil prices. Overall, the historical patterns suggest little upside inflation risk in advanced economies facing the prospect of persistent large output gaps.

Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.

Norway’s economy continues to perform strongly, reflecting strong policy frameworks and policy implementation, solid fiscal and banking system buffers, and a comprehensive social safety net. A few important challenges that need to be addressed include boosting labor supply, containing public expenditure pressures, and raising productivity.