Markets: Is the Phillips Curve dead or merely resting? - Westpac
According to David Goodman, analyst at Westpac, the big question for the markets at the moment is whether the Phillips curve is dead or merely resting?
“As the post-crisis recovery continues, many economies have seen low levels of unemployment through 2018 without a material wages response. US labour market is showing some nascent signs of wages growth as the unemployment rate moves to 40+year lows, but we have seen what would have previously been considered sub-NAIRU rates of unemployment in UK, Germany, Canada and indeed Australia and NZ without wages really accelerating.”
“Low wages growth has been (partly) explained by globalisation; technology; job insecurity; risk aversion, low inflationary expectations, declining unionisation and even monopsony and the rise of “superstar” firms. The key question for markets is whether globalisation and digitisation has permanently changed this relationship, or are the lags just slightly longer?”
“For now it seems clear that “full employment” levels are lower than previously assumed and unemployment rates may need to decline further than historical experience would suggest before spurring a material rise in wages. Watch for any signs of wages pressure which would boost inflation profiles and thus challenge the broadly accommodative monetary policy backdrop which currently underpins markets.”