Is a wage-price spiral looming in the USA and Germany?

Helmut Schmidt is remembered by many for his statement "better five percent inflation than five percent unemployment". With his view that there is a trade-off between price dynamics and unemployment, the former Chancellor took up the economic concept of the Phillips curve. However, this concept lost its significance at the latest after the global financial crisis. After the outbreak of the Corona pandemic there seems to be growing evidence that the Phillips curve may be making a comeback. Currently, inflation rates are at record levels (USA: 8.3 percent, Germany: 7.4 percent), while unemployment rates are reaching new lows (USA: 3.6 percent, Germany 5.0 percent).

How sustainable the current development is and whether inflation rates will remain at this high level is directly related to the condition of the labour market and the question of the extent to which employees can push through higher wage demands. A strong wage-price spiral is likely to prompt central banks to pursue a more restrictive interest rate policy, thus increasing the headwind for the economy and the financial markets.