Millions of people are unemployed, the government does not worry about inflation business and economic news


One reason so many policymakers refuse to panic about inflation is that the world economy still lacks so many jobs.

The International Labor Organization predicts that the global employment gap caused by the epidemic this year will be 75 million. It does not expect that this gap will narrow in 2022, when the economy rebounds, the world will still be short of 23 million jobs.

The Organization for Economic Cooperation and Development responded to this warning, saying that next year the unemployment rate in many countries will still be higher than before the crisis.

Since there are still so many workers on the sidelines, it should be more difficult for employees to push for a substantial salary increase-although the cost of living in most parts of the world is rising rapidly because of the massive reopening of the lockdown, supply bottlenecks and a surge in demand.

No spiral

This does not mean that no one gets a raise. Wages in the United States and other countries have been climbing, especially in industries that are eager to re-employ employees as customers return.

But it does show that the so-called wage-price spiral—an inflation risk that some economists and investors fear, when higher wages and higher prices push each other—is unlikely to become an urgent global issue anytime soon. problem. This leaves room for the government and central bank to continue to do what they have been doing since the beginning of last year-to support the economies affected by the epidemic with more spending and low interest rates.

Rob Subbaraman, head of global market research at Nomura Holdings, said: “There are still many jobs missing. In order to be worried about the spiraling wage price, I need to see wage growth pick up further in the third quarter, while inflation expectations have risen sharply.”

In recent months, prices in many economies have seen accelerated increases. In the United States, headline consumer inflation jumped to 5% in May, the highest level in more than a decade. The Eurozone inflation rate is 2%, slightly higher than the European Central Bank’s target, but the Bundesbank stated that German interest rates may rise to 4% by the end of this year.

The bond market also shows that investors expect prices to rise faster than before the pandemic—from the point of view of the gap between the yields of breakeven interest rates or inflation-protected government bonds and traditional bonds. In the United States, the expected growth rate for the next five years reached a peak of around 2.8% in May, and is still much higher than the pre-pandemic level.

‘Only America’

However, policymakers continue to downplay the risk of continued inflation, believing that as the supply chain blockade gradually eases, any price spikes will be eased. Federal Reserve Chairman Jerome Powell has repeatedly argued that inflationary pressures will be temporary. Christina Lagarde, President of the European Central Bank, raised a similar case last week.

Although wages in the United States have grown faster than expected in the past two months, economists at Goldman Sachs, led by Jan Hatzius, predict that wage growth will not trigger inflation. Due to fears of the virus, the supply of workers will increase significantly in the next few months. The boost to unemployment benefits will also end.

In Asia’s largest economy, price pressures are more moderate. In March, Japanese wages unexpectedly ended their 11 consecutive months of decline, but the pace did not affect the Bank of Japan’s 2% inflation target. Yi Gang, governor of the People’s Bank of China, said that China’s consumer inflation is expected to remain below 2% this year, easily below the government’s official target of about 3%.

The chief economist of Singapore’s DBS Bank and former International Monetary Fund official said: “Currently, only the United States has problems with labor shortages, increased union strength, and rising wage demand.” “We don’t have any in Asia or Europe. See this mark.”

‘This will take years’

Different paths of world economic recovery will also restrain wage growth. Although the Paris-based OECD has revised its 2021 global growth forecast from 5.6% to 5.8%, it warns that many people’s living standards will not return to pre-crisis levels for a long time. .

The Geneva-based International Labor Organization has calculated that global labor income in 2020 will be 8.3% lower than in the absence of a pandemic, and warned that labor productivity growth will remain below two-thirds of its pre-crisis level.

All of this has led most policymakers and economists to regard supply bottlenecks as the culprit for this year’s price spikes. How long it takes to solve these problems can determine whether they will cause more lasting inflation.

Klaus Baader, global chief economist at Societe Generale, said: “The growing risk is that temporary pressure will last long enough to embed expectations and trigger wage pressure.” It takes years to rise, and we will not know the final answer for a period of time. “





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