We see the broad narrative of inflation in the market as three-pronged. (i) Phillips curves are failing us because a variety of structural changes (demographics, enhanced competition from e-commerce, the gig-economy etc.) have rendered them obsolete and global slack matters more than domestic slack; (ii) even if the relationship still holds in some weak form, whether expressed in prices or wages, slack more broadly defined (U6 vs U3 type unemployment comparisons) is still substantial, so that any re-emergence of inflation is far away; and (iii) there is no core inflation or wage pressure anywhere anyway. We have several issues with this narrative.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
