Wage-price spirals are far scarier in theory than in practice

A wage-price spiral is the stuff of inflationary nightmares. It refers to a situation when prices gallop higher—perhaps because of a sudden shock or policy missteps, or both—and wages race upward to keep pace with them, in turn feeding through to yet more price rises and yet more wage increases, and so on in a vicious circle. It can seem as if the world’s economies have been living this horror: in America hourly earnings rose by about 6% last year, the biggest annual increase in four decades. In Britain wages excluding bonuses are rising at an annual clip of about 7%. On June 14th, when the Federal Reserve elected to leave interest rates unchanged after ten consecutive increases, Jerome Powell, its chairman, warned that he was watching wage trends as one test of whether the central bank might resume raising rates in July.