Interplay between inflation expectations, wage adjustments, and aggregate demand in post-pandemic economic recovery
Department of Quantitative Economics and Econometrics, Western Illinois University Macomb, USA.
Research Article
World Journal of Advanced Research and Reviews, 2022, 13(03), 629-648
Publication history:
Received on 18 February 2022; revised on 20 March 2022; accepted on 22 March 2022
Abstract:
The post-pandemic global economy has been marked by a complex interplay between inflation expectations, wage dynamics, and aggregate demand. As governments phased out stimulus programs and supply chains strained under renewed global demand, inflation surged to levels unseen in decades. This paper explores how these inflationary pressures—both anticipated and realized—affect wage-setting behaviors and consumer demand patterns, particularly in the context of ongoing economic recovery efforts. From a macroeconomic standpoint, inflation expectations serve as a critical determinant of forward-looking wage negotiations and business pricing strategies. When workers anticipate higher future prices, upward wage pressure emerges, potentially feeding into a wage-price spiral that amplifies inflation inertia. However, the strength of this feedback loop varies across labor markets, sectors, and regions based on institutional wage-setting mechanisms and bargaining power asymmetries. The study further examines how wage adjustments influence aggregate demand through income redistribution and consumption sensitivity. In economies where real wages have lagged behind inflation, household purchasing power has eroded, tempering consumption-led recovery. Conversely, targeted wage growth in lower-income brackets can stimulate demand due to higher marginal propensities to consume. Through both theoretical modeling and empirical analysis from select OECD and emerging economies, this research identifies the transmission channels and thresholds at which inflation expectations begin to destabilize recovery trajectories. The findings underscore the need for coordinated monetary and fiscal policies that balance inflation anchoring with real income protection. A nuanced understanding of the inflation-wage-demand nexus is essential for policymakers navigating the fragile path toward sustainable post-pandemic economic normalization.
Keywords:
Inflation expectations; Wage dynamics; Aggregate demand; Post-pandemic recovery; Consumption behavior; Economic policy
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Copyright © 2022 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution Liscense 4.0