Wage growth– key priority for Carney?

Note: This section contains information in English only.
Source: Dukascopy Bank SA
"We all want the recovery to be sustainable and the early signs are consistent with that. But we need to see real growth in every sector and in the current level of wages."
- Mark Carney, BoE Governor


Several months ago Mark Carney decided to abandon his unemployment threshold and focus on eliminating the remaining slack in the economy. He has not specified the indicator that will be the main pillar of a new forward guidance. But, perhaps, he already decided to target wage growth as a sign of the economic amelioration?

During the interview with the Bristol Post the Governor pointed out that a substantial wage rises will be required to ensure the stable economic growth that began last year. While this statement decreases the level of uncertainty, it is unusual for a central banker. Usually, the central bank warns that a rapid growth in wages will lead to a self-perpetuating inflationary pressure. Carney's comments, however, are suggesting that currently world banks are facing a challenge of persistently weak inflation growth.

At the same time, it can be an evolution in Governor's thinking about the way of assessing the spare capacity in the economy. Last month, the wage growth has finally reached the pace of inflation, adding more pressure on the central bank. We have seen something similar in the U.S., as two former BoE officials claimed the Federal Reserve should focus on evidence of wage gains rather than a drop in the unemployment rate.
© Dukascopy Bank SA

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