ADVANCE RESEARCH METHODOLOGIES:

ASSIGNMENT NO: 1

MODERATING EFFECT OF FUEL PRICES ON DISTRIBUTION COST IN FMCG

INDUSTRY OF PAKISTAN.

NAME OFGROUP MEMBERS:

FAYSAL AYUB

HASNAIN

FIZA AKHTER

SUBMITTED TO:
Dr. ATIF AZIZ

TABLE OF CONTENTS

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TABLE OF CONTENTS……………………………………………………………… 2

ABSTRACT………………………………………………………………………………

ACKNOWLEDGMENT………………………………………………………………

INTRODUCTION……………………………………………………………………..

 AIM OF STUDY…………………………………………………………….
 DEFINITION OF INFLATION………………………………………….
 MEASUREMENT OF INFLATION…………………………………….
 INFLATION RATE……………………………………………………….
 INFLATION RATE IN PAKISTAN………………………………..
 DISTRIBUTION COST……………………………………………..
 DISTRIBUTION COST ANALYSIS……………………………………..
 IMPACT OF IV ON DV…………………………………………………….

RESEARCH PROBLEM……………………………………………………………..

RESEARCH QUESTIONS……………………………………………………………

THEORITICAL FRAMEWORK……………………………………………………

OBJECTIVES……………………………………………………………………………

HYPOTHESIS…...............................................................................

LITERATURE REVIEW…………………………………………………………….

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ABSTRACT:

ACKNOLEDGEMENT:
First of all we really thankful to Almighty ALLAH who made this research possible for us within
limited period. We admire the untiring support of our teacher SIR ATIF AZIZ without his
guidance it’s seemed difficult to carry out research in right way. We are indebted to our
parents, their prayers made this task easy for us. Overall its great exposure for all of us group
members to show our tacit knowledge into existence. Finally, our gratitude to all friends who
shared their knowledge and experience to make it presentable.

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INTRODUCTION:
 AIM OF STUDY:
Our aim of study is to show the distribution cost that how it effect the price of our final product.
If the inflation rate will high so how it effect on our independent variables (outward freight, staff
cost & sales promotion and advertisement.

DEFINITIONS:

INFLATION:

A consistent trend is increase of commodities. Inflation is an economic term that refers to an

environment of generally rising prices of goods and services within a particular economy. As
general prices rise, the purchasing power of the consumer decreases. The measure of inflation
over time is referred to as the inflation rate. In common terminology, many people may refer to
inflation as "the cost of living."

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For example: prices for many consumer goods are double that of 20 years ago. When you hear
your grandparents recall, "A movie and a bag of popcorn only cost $1.00 when I was your age,"
they are making an observation about inflation--the cost of goods and services--over time.

MEASUREMENT OF INFLATION:

Calculate the inflation on three ways:

 Consumer price index

 Sensitive price index

 Weighted price index

INFLATION RATE:

The rate at which prices increase over time, resulting in a fall in the purchasing value of money.
“The average inflation rate over the decade was 2.9 per cent".

INFLATION RATE IN PAKISTAN:

Pakistan: Inflation: percent change in the Consumer Price Index:

For that indicator, The World Bank provides data for Pakistan from 1960 to 2018. The average value for
Pakistan during that period was 8 percent with a minimum of -0.5 percent in 1962 and a maximum of
26.7 percent in 1974. See the global rankings for that indicator or use the country comparator to
compare trends over time.
Pakistan’s annual inflation rate increased to 12.55 percent in September of 2019 from 11.63 percent in
the previous month. It was the highest inflation rate since June of 2011, as prices advanced faster for
food & non-alcoholic beverages (13.35 percent vs 10.68 percent in August); housing & utilities (12.75
percent vs 12.70 percent); clothing & footwear (8.68 percent vs 8.51 percent); furniture & household
equipment (11.33 percent vs 10.66 percent) and miscellaneous goods & services (14.51 percent vs 14.42
percent). On the other hand, prices slowed for transport (14.28 percent vs 15.26 percent); education
(5.21 percent vs 7.05 percent) and communication (8.97 percent vs 8.98 percent). On a monthly basis,
consumer prices increased 0.75 percent, following a 1.38 percent rise in the previous month. Inflation

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Rate in Pakistan averaged 7.77 percent from 1957 until 2019, reaching an all time high of 37.81 percent
in December of 1973 and a record low of -10.32 percent in February of 1959.

DISTRIBUTION COST:
Distribution costs (also known as “Distribution Expenses”) are usually defined as the
costs incurred to deliver the product from the production unit to the end user. Handling cost of
inventory at all points for example production place, storehouse, sales point is part of distribution cost.
Packing costs are also part of distribution costs. Distribution managerial cost such as the salary expense
of distribution manager and his/her office expenses are also part of distribution costs.

DISTRIBUTION COST ANALYSIS:

More and more firms are using some form of contribution accounting to determine the profitability of
products, channel units, and market segments. Such a method assigns first all variable marketing and
production costs to a product. Variable production costs are direct labor and materials. The variable
marketing costs are due to credit, shipping, sales commissions, merchandising and advertising. Some
firms go further and allocate certain fixed joint costs, but this should only be done when one can find a
logical relationship between the assigned expenditure and the product sales.

Since the response to marketing effort will vary by customer and by product, marketing managers must
decide how their marketing efforts will be allocated among customers and products. Thus, marketing
managers must have knowledge of each major account, including its potential by product. They must
also know if they are getting a greater or lesser share of an account’s potential, and whether they have
been applying increasing or decreasing amounts of marketing effort to the account. Through ex post
facto types of analyses or through experiments managers can estimate the likely results of applying
additional marketing efforts to accounts of certain sizes, given the share of the account’s potential that
has already been obtained by the firm. For example, one company determined that with accounts
representing $100,000 and more annual potential, it was most unlikely that they could obtain better
than a 30 percent share regardless of the nature and magnitude of the inputs. 

IMPACT OF FUEL ON DISTRIBUTION COST:

Oil price increases are generally thought to increase inflation and reduce economic growth. In terms of
inflation, oil prices directly affect the prices of goods made with petroleum products…. Increases in oil
prices can depress the supply of other goods because they increase the costs of producing them.

IMPACT OF OUTWARD FREIGHT ON DISTRIBUTION COST:

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In general, outward freight projects that improve overall accessibility (i.e., they improve businesses
ability to provide goods and services, and people’s ability to access education, employment and services)
and reduce transportation costs (including travel time, vehicle operating costs, road and parking facility
costs.)

IMPACT OF STAFF COST ON DISTRIBUTION COST:

If the staff cost is a competitive one in which wages are determined by demand and supply, increasing
the wages requires either increasing the demand for labor or reducing the supply. Increasing demand
for labor requires increasing the marginal product of labor or raising the price of the good produced by
labor.

GDP Growth
0.08

0.07

0.06

0.05

0.04

0.03

0.02

0.01

0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-00 -01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11 -12 -13 -14 -15 -16 -17F -18R -19P

Growth

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BACK GROUND:
We have encountered an idea to conduct a formal research on the impact of high inflation rates

on Selling and distribution cost of FMCG (Fast Moving Consumer Goods) Industry of Pakistan.

While other researchers have also studied the impact of different variable on distribution cost

but as per our knowledge three variables (Fuel, Vehicle Rentals & Running) have not been

studied together so far in the context of Pakistan. High inflation rates have always been a major

issue for developing countries like Pakistan which usually affects the cost of manufacturing,

distribution among other things.

Fuel prices are regulated in Pakistan and it is notified by Oil & Gas regulatory authority of

Pakistan (OGRA) means that organizations have not any other option but to buy fuel at fixed

prices while the other variables which include Vehicle rentals and running are mostly informal

sector as far as Pakistani industry is concerned.

Ke, Jian-yu&Dresner, Martin & Yao, Yuliang. (2014). An Empirical Analysis of the Impact of Fuel Costs
on the Level and Distribution of Manufacturing Inventory in the U.S.. Transportation Journal. 53. 5-25.
10.5325/transportationj.53.1.0005.

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THEORITICAL FRAME WORK:

Independent variable Moderator Dependent variable

FUEL PRICES

OUTWARD FREIGHT

DISTRIBUTION COST
STAFF COSTS

SALES PROMOTION
AND ADVERTISMENT

PROBLEM STATEMENT:
As soon as industry is growing , technological gadgets have simplified .the global
market it has now become much easier to forecast thing for the business , however in such
competitive era the cost especially the variable cost is the one which is need to be considers
significant .

Therefore in order to survive in this competitive environment the value ability of

distribution cost is significantly is take place a very important role in FMCG industry.

So there is a need to study impact of distribution cost in FMCG.

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 Distribution cost is mostly depend on fuel, labor and rental cost we take 3
variable and try to see how much these affect to our distribution cost .in past researches
discuss on whole distribution cost but here we select 3 main variable.

RESEARCH QUESTION:
Our whole research will be based on our following observations:

 What are the critical factors that determine the effectiveness of distribution process of FMCG
sector of Pakistan?
 Does salary significantly affect by high inflation?
 Does training cost significantly affect by inflation?
 Does advertising significantly affect by the inflation?
 How distribution process effectiveness significantly affected by inflation.

Research objective:
The rationale behind the conduction of this study is to observe the impact of inflation on
distribution process. Determining the effect inflation shares in salary, training and advertising
cost of an organization therefore, adding all such issues through this study will be the main
focus of this study and it is a descriptive study in this manner.

Main objectives is to find impact of inflation on distribution cost a part from that it will be attempted to
find :

 The impact of outward freight on distribution cost.

 The impact of staff costs on distribution cost.
 The impact of sales promotion and advertisement on distribution cost.
 The impact of fuel prices on distribution cost.
 The impact of fuel prices on outward freight.
 The impact of fuel prices on staff costs.
 The impact of fuel prices on sales promotion and advertisements.

HYPOTHESIS:
 In inflation cost of salary, distribution cost increase but is it really affecting the final price of
Product.
 Training Labor cost is have strong relationship with distribution cost .but in inflation era training
Labor cost increase the cost of final product

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  advertising expenses have a weak relationship to distribution cost in inflation era but we will see
How much it is affect to our distribution cost.

LITERATURE REVIEW:
This study estimates the threshold level of inflation in Pakistan [à la Khan and Senhadji (2001)] using
annual dataset from 1973 to 2000. The estimated model Suggests 9 percent threshold level of inflation
above which inflation is inimical for economic growth.

Several studies have estimated a negative relationship between inflation and economic growth.
Nevertheless, some studies have accounted for the opposite. Thirlwall and Barton (1971), in one of the
earliest cross-country studies, report a positive relationship between inflation and growth in a cross
section of industrial countries and a negative relationship in a cross section of 7 developing countries.

Gillman et al. (2002), based on a panel data of Organization for Economic Cooperation and
Development (OECD) and Asia-Pacific Economic Cooperation (APEC) countries, indicate that the
reduction of high and medium inflation (double digits) to moderate single digit figures has a significant
positive effect on growth for the OECD countries, and to a lesser extent for the APEC countries. They
further add that the effect of an expected deceleration of inflation might only be observed when the
world economy is not facing a sudden growth rate deceleration due to shocks. If there are no such
shocks, a reduction in inflation rate can produce considerably higher growth rate. Similarly, Alexander
(1997) finds a strong negative influence of inflation on growth rate of per capita GDP using a panel of
OECD countries.

Fischer (1993) results indicate that inflation reduces growth by reducing investment and productivity
growth. He further notes that, low inflation and small fiscal deficits are not necessary for high growth
even over long periods; likewise, high inflation is not consistent with sustained economic growth. Ghosh
and Phillips (1998), using large panel dataset, covering IMF member countries over 1960 to 1996, found
that at very low inflation rates (less than 2-3 per cent) inflation and growth are positively correlated.
However, they are negatively correlated at high level of inflation. Similarly, the empirical results of Nell
(2000) suggest that inflation within the single-digit zone may be beneficial; while inflation in the double-
digit zone appears to impose slower growth.

Bruno and Easterly (1996) find no evidence of any relationship between inflation and growth at annual
inflation rates of less than 40 percent. They find a negative, shorter to medium term relationship
between high inflation (more than 40 percent) and growth. Furthermore, they report that there was no
lasting damage to growth from discrete high inflation crises, as countries tend to recover back toward
their Yasir Ali Mubarik 37 pre-crisis growth rates. Mallik and Chowdhury (2001) conducted co
integration analysis of inflation on economic growth for four South Asian countries (Bangladesh, India,
Pakistan, and Sri Lanka) and report two interesting points. First, inflation and economic growth are

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positively related. Second, the sensitivity of inflation to changes in growth rates is larger than that of
growth to changes in inflation rates.

One recent analysis suggests that there is a threshold level of inflation in the relationship between
output growth and inflation. In this context, Khan and Senhadji (2001) have done the seminal work.
They not only examine the relationship of high and low inflation with economic growth but also suggest
the threshold inflation level for both industrialized and developing countries. They conduct a study using
panel data for 140 developing and industrialized countries for the period of 1960-98. Their results
strongly suggest the existence of a threshold beyond which the inflation exerts a negative effect on
economic growth. In particular, the threshold estimates are 1-3 percent and 7-11 percent for industrial
and developing countries, respectively.

Rural become the least developed area in terms of economy. The majority of poor people live in rural
area, so that the rural becomes a prime pocket of poverty. In 2007, 63.52 percent of total poor people in
Indonesia live in rural area which is much higher than urban area.

Similar condition occurred to inflation rate. In period 2005 to 2008, rural area experienced persistently
higher inflation rate relative to urban area. These all show that price changes will have higher pressure
on rural economic performance relative to urban. Therefore, important question that might arise is
whether the inflation rate will affect poverty level in rural area.

Number of empirical studies by Keidel (2007), Azzoni et al (2004), Nouve dan Wodon (2008), Singh
et.al (1986), Deaton (1989; 1997), Demombynes et.al (2008), Tsimpo and Wodon (2008),Vedder and
Gallaway (2001), Epaulard (2003), James et.al (2008), Easterly and Fisher (2001; 2004), Son and
Kakwani (2006) and Akande, et all (2003) found that fluctuation on macroeconomic indicators, one of
them is inflation rate, do have significant impact on poverty level. This issue is really important in terms
of poverty alleviation program. If inflation rate has substantial effect on rural poverty, thus government
should control rural inflation rate along with poverty alleviation program since most poor people lives in
rural area. Up to now, there are only few studies that focus on inflation rate and poverty in rural area. A
study by Asra (1999) demonstrates the importance of urban-rural price differences and inflation figures
in poverty analysis in Indonesia. The study presents different methodology to estimate poverty
incidence by using both ratios of urban to rural food prices and observed inflation rates. However the
impact of inflation rates on poverty level still not being observed. Therefore the objectives of this paper
are to analyze the impact of inflation rate on poverty level in national level, urban and rural level.
Moreover, the research also measures the contribution of each group of commodity inflation to poverty
level and the magnitude of its impact on urban and rural poverty level.

The Impact of Oil Price Changes on Inflation in Pakistan:

Oil price fluctuations have remained a well-researched topic for its assumed role in the macroeconomic
performance in the country. Specially, after the oil shocks of 1973-1974 and 1979-1980, this variable is
considered vital for macroeconomic stability (Jalles,2009). Bruno and Sachs (1982) study is supposedly
the first one to have examined the effects of oil prices of the 1970s on output and inflation in a
theoretical framework. Later, Hamilton (in 1983, 1996, 2003, and 2008) established a vital role for oil

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price increase in most of US recessions. Similarly, Tatom (1998), Mork (1989), Mork, et al. (1994), Kahn
and Hampton (1990), Huntington (1998) all have substantiated through their empirical investigations
the effect of oil price shocks on output and inflation. Lescaroux and Mignon (2008) also investigated the
links between oil prices and various macroeconomic variables including CPI for a large set of countries,
including both oil importing and oil exporting countries and highlight the existence of relationships
between oil prices and macroeconomic variables.

Few studies have examined predominantly the reaction of consumer prices and inflation to oil price
movements (for instance, Gisser and Goodwin, 1986; Fuhrer, 1995; Gordon, 1997; Guo and Kliesen,
2005; Hooker, 2002; Stuber, 2001; Barsky and Kilian, 2004; LeBlanc and Chinn, 2004; Kinnefors and
Wribe, 2006; and O’Brien and Weymes, 2010). According to Fuhrer (1995), Gordon (1997) and Hooker
(2002) oil price increase represents an inflationary shock which can be accompanied by second round
effects, through the price-wage loop. Barsky and Kilian (2004) show that oil price increases generate
high inflation, whereas LeBlanc and Chinn (2004) confirm only a moderate impact of oil prices on
inflation in United States, Europe and Japan. Kinnefors and Wribe (2006) also find some connection
between the price of crude oil and inflation for Sweden. Likewise, O’Brien and Weymes (2010) also
confirm the role of energy prices behind inflation in Irish economy.

Hooker (1996) for instance, challenges Hamilton’s findings on the ground, that sample stability is
important. Oil prices are endogenous, and that linear and symmetric specifications misrepresent the
form of the oil price interaction. According to Hooker (1996) oil prices does Granger cause a variety of
US macroeconomic indicators in the data up to 1973; and not in the data after wards?

Volatility in oil prices has important implications for Pakistan’s economy given its substantial
dependence on imported fuels. Oil is the second largest source of energy consumed (30%) after natural
gas (44%). Energy prices have a crucial role to play behind inflation rates in Pakistan. There exists a
strong correlation between international crude oil prices and consumer price index (CPI) (around
0.87%). Since 2004-2005, headline inflation is continuously going upwards. Reasons generally cited for
this continuous increase are mainly increase in global oil prices and import bill of food group. It is also
contended that the impact on inflation would have been even worse, had the government not offered
subsidies on oil products and food commodities (Pesnani, et al., 2008).

Cuñado and Gracia (2004) have also empirically proven asymmetries in the oil prices and
macroeconomic variables (consumer prices and economic activity) for some of the Asian countries.
Similarly, Huang and Yang3 examine the relationship between real oil price changes and inflation rates
in the framework of Mork’s (1989) asymmetrical model. Their findings support long run asymmetric
responses of inflation rates to real oil price increases and decreases. They explained that the immediate
response of inflation to real oil price changes are mainly larger than that of lagged periods, and the
cumulative impact of real oil price increase is in general larger than the cumulative impact of real oil
price decrease.

Consumer Price Inflation across the Income Distribution in South Africa:

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Around the world, households are mindful of and concerned by rising prices and, consequently, the rate
of consumer inflation is one of the macroeconomic indicators most closely watched by society. Many
households, however, will claim that the published rate of inflation is not an accurate reflection of their
own inflation rate and, most often, the claim is that their own rate of inflation is the higher of the two.
These claims stem partly from an inability on the part of households to accurately calculate their own
rates of inflation, impacting on the accuracy of their comparisons. However, at some level, based on
individuals’ reactions and media reports, households are often aware that the difference between the
official and own inflation rates is linked to the various goods and services they actually purchase,
whether or not there is overt reference to the official basket.

This paper addresses two issues raised in the literature, namely the empirical evidence that different
households in society experience different rates of inflation, linked directly to their differing
consumption patterns, and that the conventional form of consumer price indices provides a biased
estimate of average inflation.

There is a long history of group-specific price indices. Interest in the calculation of price indices for
specific sub-populations began in the 1950s when Kenneth Arrow noted that individuals and households
in different income categories would be likely to have differing patterns of consumption (Garner et al.,
1996: 32). It is now “well established that demographic factors exert an influence on consumption
patterns net of price and income effects” (Idson & Miller,1999: 219). Differing consumption patterns
imply different shares of the various goods and services in total expenditure, affecting these items’
weights within consumer price indices and, therefore, impacting on the actual inflation rates
experienced by each household.

Considerable work has been done internationally on so-called ‘group-specific price indices’, which take
into account the differing expenditure patterns of households and individuals but which recognize that
groups of similar households or individuals may have similar expenditure patterns. Work in this area
tends to define groups in two key ways. Firstly, groups are defined according to income, with numerous
studies focusing on the poor or contrasting the inflation fortunes of the poor with the non-poor (see, for
example, Hollister & Palmer, 1972; Hagemann, 1982; Garner et al., 1996; Murphy & Garvey, 2004;
McGranahan & Paulson, 2006). Alternatively, groups are defined according to some demographic or
household characteristic, such as age or family structure (see Amble & Stewart, 1994; Idson & Miller,
1999; McGranahan & Paulson, 2006).

The second issue revolves around the bias inherent in the standard calculation of the weights used by
statistical agencies to calculate price indices. Standard practice sees expenditures on a given item
totaled across households and then divided by total household expenditure across all items and
households. These weights are termed plutocratic weights. However, one of various alternative
methods first calculates expenditure weights for all households individually, with the overall weight
calculated as the mean across all households. According to Prais (1959: 126), the latter method, known
as the democratic method, “attaches equal weight to each household in calculating the Weight of the
commodity in the index ... [while] ... the conventional [or plutocratic] method gives a result equivalent
to taking an unequally weight edaverage of the proportions for each household, the weights being the

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total expenditure on all commodities by that household”. Differences in calculation of the weights
impact on the representivity of the resulting price indices, with the plutocratic index biased towards the
upper end of the income/expenditure distribution.

The main conclusion is that there is generally little difference in the rates of inflation between groups
and, where differences are found, no single group experiences consistently higher or lower rates of
inflation relative to other groups over the longer run. However, evidence does seem to show that there
is a greater dispersion in inflation rates during periods of above average inflation.

These findings are consistent across various methods of grouping households. For example, Garner et al.
(1996) investigate possible differences in experimental price indices of US poor and non-poor
households, covering the period between 1984 and 1994, and find that the price indices of poor
households do not differ much from those of the urban population as a whole (Garner et al., 1996: 40).
A Canadian study by Taktek (1998) analyses movements in price indices for low-income households,
senior citizen households and low-income senior citizen households, over a relatively short period from
1993 (index equals 100) to 1996. The author finds little dispersion between the three indices and the
overall index, with the gap between the highest and lowest indices never exceeding two percentage
points. Other studies grouping households by income with similar findings include Murphy and Garvey
(2004) on Irish data between 1989 and 2001 and Michael (1979) on US data for the period 1967 to mid-
1974.

The link between labor cost and price inflation in the euro area:

Labor markets have been a focus of interest in the study of price inflation ever since Phillips uncovered
the negative relationship between the rate of change in wages and the unemployment rate, i.e. the so
called Phillips curve. Since then an extensive literature has developed that studies the interrelationship
between labor market developments and price inflation. An important share of this research has
explored how informative labor cost inflation is for price inflation, in particular in the short to medium
run.

Studies have taken a number of avenues to analyze this question. A first important strand in the
literature has focused on the causal relationship between wage inflation and price inflation. From a
theoretical view, the post-Keynesian view would suggest that the excess of wage gains over productivity
gains lead price inflation. Instead, according to the neoclassical theory, the causality between wages and
inflation would run in the opposite direction. In this case, the real wage is considered the relevant wage
variable in the wage-employment relationship and nominal wages are expected to respond to price
changes so as to preserve the real wage, for a given productivity level. Empirically, analyses based on in-
sample Granger causality type of tests have yielded mixed conclusions. A number of studies tend to
favor the idea that price inflation causes wage inflation and that the causality can differ across sectors.
Hu and Toussaint-Comeau (2010) find that wage growth does not cause price inflation in the Granger
causality sense, especially after the mid-80s. By contrast, price inflation does Granger cause wage
growth. Similarly, Emery and Chang (1996) and Sbordone (2002) find some evidence that rising prices
precede the growth in unit labor costs (see Bidder (2015)). However, some other studies find actually no

15
causal link between price and wage inflation. For instance, Hess and Schweitzer (2000) find that price
and wage changes are best predicted by their own lags, meaning that none Granger causes the other.
Along similar lines, Gordon (1988) and Darrat (1994) concluded that wages and prices are irrelevant to
each other and that they”live a life of their own”. Finally, Banerji (2005) approaches this changing
relationship from a different angle, looking at cyclical turns. He finds that labor cost inflation leads price
inflation at peaks, but lags it at troughs, which would make changes in labor cost a lagging indicator of
upturns in price inflation. Finally, Rissman (1995) finds that only in manufacturing and trade services,
wages granger cause inflation.

A second strand of the literature has investigated whether wages add any information when trying to
forecast inflation (see for instance Stock and Watson (2008), Knotek and Zaman (2014)). Overall, these
studies have found that for out-of-sample forecasts, wages do not provide significant additional
information beyond what can already be gleaned from other sources, including prices themselves
(Bidder (2015)). At the extreme, Stock and Watson (2008) even show that models using common wage
measures may perform worse than their preferred benchmark without wages.

A final strand of the literature has examined whether the link between labor cost inflation and price
inflation is time varying. Studies here tend to find that, while in the past (i.e. prior to the mid 1980s)
labor cost inflation did provide signals for price inflation, there is little evidence that in recent years
movements in average labor cost growth have been an important independent influence on price
inflation. Concretely, Knotek and Zaman (2014) shows how the correlation between wages and prices
has decreased since the mid-80s. Similarly, Peneva and Rudd (2017) show how the pass-through of
labor cost growth to price inflation in the US has declined over the past several decades (to the point
where it is currently close to zero). One explanation put forward has been the better anchoring of
inflation expectations in recent years.

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