Millions of missing jobs should make inflation hawks think twice

Japan Times -- Jun 15
One reason why so many policy makers are refusing to panic about inflation is that the world economy is still short so many millions of jobs.

The global employment shortfall from the pandemic is predicted by the International Labour Organization to be 75 million this year. Nor does it expect the gap to be closed in 2022, when it reckons the world will still be 23 million jobs short of its pre-COVID-19 path even as economies rebound.

The Organisation for Economic Co-operation and Development echoes the warning, saying unemployment will remain above pre-crisis levels in many countries next year.

With so many workers still on the sidelines, it should be harder for those in employment to push for big pay increases — even though the cost of living is rising fast in much of the world as supply bottlenecks and surging demand accompany the great reopening from lockdown.

That doesn’t mean nobody gets a raise. Wages have been climbing in the U.S. and other countries, especially in industries that are rushing to staff up again as customers return.

But it does suggest that a so-called wage-price spiral — an inflation risk dreaded by some economists and investors, when higher pay and higher prices fuel each other — is unlikely to become an urgent global problem anytime soon. That leaves room for governments and central banks to keep doing what they’ve been doing since early last year — support pandemic-stricken economies with more spending and low interest rates.

In Asia’s biggest economies, price pressures are more subdued. Japanese wages unexpectedly snapped an 11-month decline in March, though not at a pace to trouble the Bank of Japan’s 2% inflation target. China’s consumer inflation is expected to stay under 2% this year, according to People’s Bank of China Gov. Yi Gang, comfortably below the government’s official target of about 3%.

- Japan Times