We are talking about a return of inflation, but when was the last period of price increases that we had?
We have not had high inflation since the 1980s. But between 1999 and 2008, we experienced a period of moderate inflation, with an annual price growth rate of 2.3% per year on average. Then, between 2008 and 2019, before the Covid, it had fallen to 1.2%, even though in the United States and in many regions of the world, the unemployment rate was historically low.
Other very powerful factors have been at work, such as the uberization of the economy, digitization, relocations, the rise of China … Today, we must ask ourselves whether the world has changed.
How to explain the low inflation in recent years?
The first element is the structure of the labor market. To have sustainable inflation, we need wage increases. However, in the United States, there are still 7.5 million unemployed people. In addition, there are many who are not looking for work because of fear of Covid-19, school closures or generous state aid. There is therefore a pool of people likely to return to the labor market.
We must also ask ourselves the question of sharing added value. Labor market deregulation has reduced the bargaining power of employees. Have we changed the paradigm with the crisis? Nothing is less certain, as shown by the refusal to unionize at Amazon (6% of workers are in the United States, against 30% fifty years ago), or the explosion in the number of self-employed in Europe.
On the other hand, the crisis has been a tremendous accelerator in terms of the digitization of our economies. It is very disinflationary on the consumer side, who compares prices and buys on the Internet, and on the business side with ultimately productivity gains and therefore an ability to respond to higher demand without transcribing the increase in supply costs in prices. .
Would a relocation of production chains have effects on inflation?
In recent years, China has made cheap labor available to companies around the world, helping to lower production costs. This is in part called into question, in particular with the very sharp rise in wages and the rise of the middle class in China. The crisis has also shown the limits of this organization.
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