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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).

Source: US Bureau of Labor Statistics

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.

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