The price-wage relationship tends to be particularly clear in the face of high inflation.

Based on the analysis, the Bank of Korea suggested that in order to keep inflation under control, it is important to suppress the spread of inflation expectations through active policy responses.

The Bank of Korea analyzed, "The price-wage relationship tends to be particularly clear in the face of high inflation."

According to the Bank of Korea, there is a long-term equilibrium relationship between prices and wages.

Prices and wage movements can be separated from each other in the short term, but they maintain a stable relationship in the long run.

The rise in wages was reflected in prices with a time lag, centered on the personal service sector, which has a high proportion of labor costs.

In particular, the Bank of Korea analyzed that the price impact of wages was significantly estimated not only for personal service prices but also for overall consumer prices, according to an analysis of the 1990s when inflation and wage growth were high.

If the consumer price growth rate rises by 1 percentage point, the wage growth rate will rise by 0.3 percentage point to 0.4 percentage points after the fourth quarter, the survey showed. In response to the shock of increasing the wage growth rate by 1%p, personal service prices have increased by 0.2%p since the fourth and sixth quarters.

Looking at the effect of wages on prices by industry, the impact of wages and prices in the personal service industry was relatively greater than that of the manufacturing industry. On the other hand, industrial product prices did not show a significant response to the wage shock, which seems to be due to the low proportion of labor costs in the manufacturing industry and intensifying competition due to globalization.

The increase in expected inflation leads to an actual increase in inflation through wage increases, which in turn leads to expected inflation.

Therefore, the Bank of Korea advised, "In a situation where inflation has risen significantly recently, we cannot rule out the possibility that the high price situation will become entrenched if expected inflation becomes unstable," adding, "It is important to suppress the spread of inflation expectations through active policy responses." Expected inflation for the next year rose 0.8 percentage points from the previous month to 4.7 percent on the 27th. It was just the mid-2 percent range at the beginning of the year. This is the highest record since July 2008, when statistics were compiled.

The Bank of Korea made the announcement in its "BOK Issue Note: Inspection of Korea's Price-Wage Relationship" on the 25th.