Globalisation and the Decoupling of Inflation from Domestic Labour Costs

We provide novel systematic cross-country evidence that the link between domestic labour markets and CPI inflation has weakened considerably in advanced economies during recent decades. The central estimate is short-run pass-through from cost changes to core decreased 0.25 1980s just 0.02 2010s, while longrun fell 0.36 0.03, with estimates 2010s no longer significant. show timing of collapse coincides a steep increase import penetration group major manufacturing EMEs around turn millennium, which signals increased competition market contestability.