**Will Inflation Stay High for Decades? One Influential Economist Says Yes**
**Charles Goodhart sees an era of inexpensive labor giving way to years of worker shortages—and higher prices. Central bankers around the world are listening.**
**by Tom Fairless, The Wall Street Journal, 3/9/2022**
**Former U.K. central banker Charles Goodhart predicted that inflation would hit between 5% and 10% in 2021 — and stay high....A long glut of inexpensive labor that had kept prices and wages down for decades, he said, was giving way to an era of worker shortages, and hence higher prices....**
**Some, including Gita Gopinath, first deputy managing director at the International Monetary Fund, have expressed doubts whether the long-term inflation picture is as dire as Mr. Goodhart thinks. She said declining numbers of workers and rising retirees could instead drive inflation lower, pointing to Japan as an example....**
**Goodhart argued that the low inflation since the 1990s wasn’t so much the result of astute central-bank policies, but rather the addition of hundreds of millions of inexpensive Chinese and Eastern European workers to the globalized economy, a demographic dividend that pushed down wages and the prices of products they exported to rich countries. Together with new female workers and the large baby-boomer generation, the labor force supplying advanced economies more than doubled between 1991 and 2018. Now, he said, the working-age population has started shrinking across advanced economies for the first time since World War II, and birthrates have declined as well. China’s working-age population is expected to shrink by almost one-fifth over the next 30 years....** [end quote]
Economists often seem to forget that consumer price inflation is different than asset price inflation.
Consumer prices are driven by the relative growth of supply and demand of goods and services. If central banks lend money to banks, there’s no guarantee that the banks will lend the money to consumers who will spend it on goods and services.
Fiscal stimulus (sending money directly to consumers) is what stimulates the CPI.
Goods production may be increased by automation and outsourcing, but it’s difficult to increase the production of services (the majority of the economy) because many of the services are local and hands-on. From education to medical care to elder care to child care… any demographic change that reduces the numbers of workers while increasing the money spent will increase inflation.
Anyone who says that child care will become lower cost while the government is pumping extra money into this sector directly (by increased tax rebates) and also while supporting higher wages for the child care workers simply doesn’t understand economics.
Anyone who thinks that medical inflation will decrease while the government will be vastly increasing Medicare expenditures while the number of workers is declining doesn’t understand economics.
Every household has a unique combination of goods and services. The overall inflation rate (the CPI-U which is used to adjust the interest rate on I-Bonds) is driven by a combination determined by the BLS (Bureau of Labor Statistics).
Demographics alone is enough to propel future inflation. That doesn’t count supply chain issues, moving production from low-costforeign to high-cost domestic locations, etc.
The government could counteract this trend by inviting more young and skilled immigrants. But I think that high inflation will prevail at least in the short-to-moderate term.