Wage–Price Links and Inflation Expectations: Time-Varying Evidence from the US and UK

Links between wages, prices, and inflation expectations are examined for the United States (US) and United Kingdom (UK) using time-varying Granger causality tests applied to monthly (US 1983–2025; UK 2001–2025) and quarterly (US 1967–2025; UK 1985–2025) data. Pass-through is episodic and sector-specific rather than a stable feature of the macroeconomy. In the US, wage inflation Granger-causes price inflation during the dot-com period, the mid-2000s, and again post-COVID-19 (2020–2025), with two-way wage–price feedback emerging in the private sector from 2021 onward. In the UK, wage-to-price links reappear in 2021–2023, while recent manufacturing evidence indicates price-led wage adjustments (price inflation Granger-causing wage inflation). Inflation expectations are predominantly adaptive – price inflation Granger-causes inflation expectations – but feedback from expectations to prices strengthens during turbulent periods, including the Global Financial Crisis (GFC) and the post-pandemic inflation surge. Aggregation to quarterly frequency attenuates but does not eliminate these regime-dependent dynamics. By dating the onsets and terminations of predictive links, the analysis reconciles muted full-sample pass-through with short-lived but policy-relevant bursts, and highlights the value of real-time sectoral monitoring for assessing second-round inflation risks.