Quote from Covertibility:
Inflation and unit labor costs: A phantom menace?
"Yet, how likely is that scenario? In fact, while ULCs have historically tracked inflation fairly closely, this relationship has largely broken down over the past decade. The figure plots annual growth rates in ULCs and core inflation (price growth with volatile food and energy prices removed).2 The series roughly track each other; the correlation coefficientâa measure of their association that ranges between -1 and +1âis 0.81 over the whole series, a fairly high correlation. But since 1995, the correlation is -0.06, meaning more recent movements in the series are essentially unrelated."
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"The empirical evidence couldn't be any more clear." Keeper of a quote.
Unit labor costs are but one of many measurements of inflation.
Also, a non-corollary relationship since 1995 doesn't mean the historical relationship between ULC and core inflation won't re-emerge, especially if productivity slows.
Productivity has suppressed wage inflation, which has offset other metrics of inflationary pressures.
I do believe worker productivity has begun to decline, but I'll have to find the data.
More importantly and to the point, rising inflation is a recognized threat acknowledged by not just Bernanke, but most central banks, and has affected monetary policy and forecasts, so whether there is a correlation between ULC and core inflation is somewhat moot.
