Economists only care about one kind of inflation — and it’s not coming

Author: Adam Button | Category: Central Banks

Economists — at least the ones at central banks — don’t care about rising prices. If your gas or grocery bill is higher, it doesn’t matter to the interest rate-setters.

What they dread is a wage-price spiral. That’s a fancy way of saying they don’t care about inflation as long as it doesn’t mean higher wages. If prices rise without corresponding demands for higher wages, it’s a finite move — consumers will eventually have no more money to spend. If wages rise along with prices the cycle can be endless and they need to halt it.

The thing that inflation bugs miss is that wages aren’t rising, in many cases they’re going to other way. MarketWatch profiles American Axle as a symptom of the Michigan manufacturing industry.

Base pay for new hires at Axle in Three Rivers is $10.50 per hour, half the going rate of 10 years ago.

Does that sound like inflation? The story also talks about ‘huge turnout’ at a company job fair for those positions.

Globalized manufacturing has been a tremendous force to keep consumer goods cheap but it’s also leading to major competitive pressures on US wages.