New wage indexation: what are the short-term effects on prices ?

For the first time since October 2013, an automatic wage indexation has been applied this January. On this occasion, its direct impact on underlying inflation has been estimated on the basis of an econometric analysis. The results point to a rather marginal impact of around 0.2 percentage points, consistent with prior findings. Going beyond this figure, the analysis gives insight into the impact’s timing and transmission channels. In general, prices are adapted quickly (in the month of indexation or the following). While a relatively low share of prices seem to be highly responsive to wage indexation, those of services related to health and care are particularly sensitive and make up almost half of the total impact.