Little inflation risk from falling jobless rate, says Wadhwani
Friday 03 December 1999
He said the unemployment rate below which a tight jobs market triggers inflation - the "non-accelerating inflation rate of unemployment" or Nairu - is lower now than at the start of the 1980s, although still higher than during the economic golden age of the 1960s.
It could fall more thanks to the increase in competition spurred by the Internet and to the Government's New Deal, which will eventually be extended to all unemployed adults, he said.
This did not mean the MPC could be complacent about inflation, Dr Wadwhani said, but there was a good case for allowing unemployment to continue falling. "One therefore looks for direct indicators of labour supply shortages, and evidence that they are placing upward pressure on pay," he said, adding that the current signs were mixed.
"Forthcoming developments in the labour market therefore continue to deserve careful monitoring," he told the Society of Business Economists in London last night.
The fact that economists had consistently overestimated likely joblessness, at the same time as getting inflation forecasts too high, was strong evidence of a fall in the Nairu since 1980. The average forecast for underlying inflation in the past seven years has been 0.4 percentage points too high, compared to an inflation target of 2.5 per cent, while unemployment had been overestimated by about 220,000 each year.
Dr Wadwhani said labour market deregulation reflected in declining union power, a reduced mismatch of skills between regions, and increased competition in product markets were the main reasons for the improved unemployment- inflation combination. Extended home ownership and perverse incentives created by housing benefit had worked in the other direction.
- 1 Cyclist in Russia narrowly misses being hit by car and lorry
- 2 'F*ck it, I quit': KTVA reporter Charlo Greene quits live on air in spectacular fashion
- 3 What are your fingerprint words?
- 5 Pink Floyd new album: Band unveil cover art for first record in 20 years
Rihanna 'nude pictures' claims emerge on 4Chan as hacking scandal continues
Slough train station deaths: Woman and child killed after being 'pushed in front of train'
Kim Kardashian 'nude photos' leaked on 4chan weeks after Jennifer Lawrence scandal
'F*ck it, I quit': KTVA reporter Charlo Greene quits live on air in spectacular fashion
Jennifer Lawrence: Leaked 4Chan sex video branded 'fake' by users
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
Labour Party conference: Ed Balls to set out plan to freeze child benefit to balance books
iJobs Money & Business
£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...