The View | When it comes to prices, what happens in China stays in China
- In an era of deglobalisation, disinflation in China won’t help to moderate price rises in the rest of the world, as long as the drivers of inflation – including a massive monetary overhang – hold strong
- More to the point, inflation will last for as long as confidence in the US dollar holds
Disinflation in China – a slowdown in rising prices – can’t bring down global inflation. Labour shortages, declining labour productivity, deglobalisation and a massive monetary overhang will sustain substantial global inflation for years to come. The inflation climax will come when the US dollar crashes.
In fact, there is a structural labour shortage even across the industrialised world. Employment in OECD countries reached a record high of 69.9 per cent of the labour force in the first quarter of this year, while its working-age population is predicted to decline as far as the eye can see. This means more bargaining power for workers.
Yet, workers don’t always take advantage of their bargaining power. During its three decades of stagnation, Japanese workers almost never took action to push for wage increases.
However, we can be sure that workers in Anglo-Saxon countries will take advantage of their favourable position. Their history of organised labour certainly points in that direction.
We are already seeing industrial action in some service industries, and a major strike is looming in the US auto sector. When their real wages are falling, Anglo-Saxon workers won’t take it lying down like their Japanese counterparts.
