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A genie in a bottle: Inflation, globalisation, and competition

Dan Andrews, Peter Gal, William Witheridge, (2018), “A genie in a bottle: Inflation, globalisation, and competition”, VoxEU, 11 May

Markets and commentators are speculating that there may be a sustained pick-up in inflation in the US, after years of subdued price pressures. Along with continued solid US jobs growth and low unemployment, there are tentative signs of higher wage growth and the fiscal stimulus will also boost short-term growth. Global growth is also getting stronger (OECD 2018a).

As well as these recent developments, longer-term worldwide trends which have kept inflation generally low since the mid-1990s may also be reversing. In particular, globalisation appears to have stalled since the crisis, aggregate demand is strengthening, and output gaps have closed or are generally close to zero in most major countries. Moreover, there is mounting evidence of rising market power in services sectors. Together, these trends risk letting the inflation genie out of the bottle.[…]

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