What's Happening to Inflation?

 

As the global economy recovers from its COVID-induced lockdowns, there's been an uptick in inflation this year, particularly in the United States.

Global supply chains have been damaged and it's pushing higher costs into the system.

Think of how the global semi-conductor shortage has contributed to a shortage of new cars and how that's seen the price of second-hand cars surge too, says Rowan Relton.

Economists are arguing about the meaning of the inflation: is the inflation temporary or will it be longer-lasting?

At the moment, institutions like Australia's Reserve Bank, the US Federal Reserve and the International Monetary Fund think the higher rate of inflation will be temporary.

The European Central Bank held a two-day forum to discuss what monetary policy might look like in the future, and it included a debate on "the future of inflation.

On trend inflation, which refers to longer-term dynamics, working-age populations would start declining in many countries as populations age.

And that would see the global labour supply shrink in coming decades.

According to Rowan Relton, all of the factors that have led to an increase in labour, the reduction in bargaining power that went with it, the decline in trade unions etcetera, all of that will now reverse.