The FT has reported this morning that:
Europe’s biggest private-sector employer Volkswagen has said it is not under pressure to raise salaries, reinforcing central bankers’ forecasts that the region’s economic rebound from the coronavirus pandemic is unlikely to fuel sustained inflation.
Three things. First, I suspect that VW is telling the truth. I see little reason for it to say otherwise.
Second, there is no real sign of that wage pressure anywhere.
Third, that means there are no reasons for persistent inflation.
No one disputes we might get a little upkick this year. I very much doubt any policymaker will react to this in any serious way. The underlying causes of inflation do not exist.
It is time to discuss other issues of great importance.
Well, yes, but wages are of “great importance” and we have a large cohort, “gig” economy and all that, on very low wages. And of course wage restraint doesn’t apply to the likes of the CEO of AstraZeneca, but does apply to those at the bottom.
Inequality has just been given the green light to continue as usual.
clearly depends on what are of the gig economy you refer to..the building industry particularly via home refurbishment is going great guns and tradesmen are definitely experiencing a decent uplift in wages..
In the UK though the share of GDP going to wages has dropped from about 65% in the mid 70’s to just under 50% now, to say nothing of the increasingly uneven distribution of those earnings.
Hence high levels of consumer debt, and growing social security spending.
I suggest that this is an issue politicians should be adressing
At the risk of being facetious, politicians have addressed this. It’s been deliberate policy for four decades. Never mind the economics, this is why there’s no wage inflation.
/Everyone/ is talking about the inevitable coming inflation – all the financial papers, commentators, politicians. It seems the only people in the establishment who /aren’t/ saying that most of the time are the central bankers (and even some of them are starting to succumb to the group-think). Here in Australia the central bank has been talking about how wages need to start rising asap for several years, and now they’re talking about how they’re not going to increase interest rates for at least the next few years, and they’re making noises about not doing so until inflation is solidly at the top of their target range. The Treasury has even gotten in on the act and is now talking about redefining their NAIRU estimates down by at least a percentage point, to well below the level that we were at before the pandemic hit and a level that even the stupidly bad forward estimates they make don’t see us reaching for /years/. But still all the commentators are talking about how inflation is coming soon . . .
I’m seriously wondering if any of these people ever reflect on the relationship between their /previous/ statements on such things, and the reality that eventuated. It’s seems pretty unlikely, given their past performances.
I agree it is unlikely that wage led inflation is going to be a problem any time soon.
It’s possible I’m wrong about that and that the extra hundreds of billions which are in the hands of the private sector as a direct consequence of the extra hundreds of billions of govt spending, might start to be respent too quickly. This is the reason for the concern of some . It is worrying that the general assumption, both here and in the USA, is that interest rates would then have to rise as a consequence.
So the neoliberal view seems to be that the ‘antidote’ for running a lax fiscal policy, albeit necessary due to exceptional circumstances, is to then run a tighter monetary policy. This doesn’t make any sense. Why not just tighten up on fiscal policy instead? Any significant increase in interest rates, as Richard has already explained, would be disastrous for the economy right now.