Wage inflation is not just a US issue

Inflation, specifically wage inflation, could take center stage today leading into the employment report in the US on Friday. A good number will convince the markets that the Fed is going to raise rats as soon as September and put the possibility of a second hike by year end into focus. This could create the gap between countries monetary policies and bring back the concern, and volatility, of divergence. While the world looks to America to see if and when policy will start to diverge, other countries should start of think of their own divergence strategies.
 
Lower unemployment in Germany has the country diverging from Italy, which still has above 11% inflation, which could spark inflation differentials between countries as well. Unlike the US, Germany cannot raise rates to counter higher wage demand. This will result in the government having to try other means in order to keep wages (and overall) inflation tame while other countries in Europe still need easing. The inflow if immigrants proved promising until political backlash started to stem the willingness of the government, and private business, to welcome more workers. Continuous QE within the Eurozone combined with inflation could result in a deeply negative real yield and cause a selloff in the safe haven of Europe.​