American wholesale prices fell in December by 0.1%, vs a consensus expectation of a 0.2% increase. Year on year, the producer price index excluding food and energy was up 2.3%, vs. an expected 2.5% print.
Yet again, inflation has come in lower than the economics profession’s estimate. On Jan. 5 the Eurozone registered a 0.9% year-on-year gain in core consumer price inflation (vs. a consensus expectation of 1%).
Rising oil prices, we’ve noted several times recently, have nudged the inflation component of bond yields upward. But the rest of the economy just isn’t generating wage or finished-good or service price inflation. The substandard recovery of the past ten years has left plenty of slack in US labor markets, and technological change has suppressed wage gains. Corporations are outsourcing administrative functions, so that “business and professional services” have grown much faster than overall employment (see chart).
As Professor Edmund Phelps suggests, an aging workforce is more concerned about job security than about wage gains. Americans are retiring later because they are healthier and because they can’t afford to retire, so that the available pool of labor is greater. Technological change of many kinds, including the gig economy, suppresses wage growth in services. For a dozen reasons, structural changes have made this a low-inflation if not a disinflation economy.
"For a dozen reasons, structural changes have made this a low-inflation if not a disinflation economy." … perhaps enumerating a couple of them would have been a tad helpful to your thesis … and your readers. If you read an analyst state that, "For a dozen reasons, structural changes have made a bitcoin meltdown inevitable", wouldn’t you want one or two out of the "dozen or so reasons", that made the author come to said conclusion?
I am not entirely certain of the main thesis of this article.
After Friedman, I thought it was generally accepted that the Phillips Curve was not a reliable model. Is the article simply re-inforcing this, or using the lack of apparent inflation/unemployment relation to argue something is wrong in the economy?
In fact it is, along with too many others, a deflationary economy.
This increases debt and puts folk off, from buying goods.
Deflation also decreases tax revenues and puts economies into a deflationary spiral of contraction.
A little inflation is a very good thing.