Economic rules about jobs and inflation just don't seem to work anymore: Don Pittis

Thursday, 22 June 2017, 11:43:07 PM. Where did inflation go and how do we get it back? As Canada readies for its latest look at the state of rising prices, struggling workers want to know.
It used to be that the rules for how inflation worked were pretty simple. Now, as the official statistics show prices stalling at between one and two per cent, a growing number of economists aren't so sure. Tomorrow, Canada gets its latest look at the state of rising prices when Statistics Canada releases inflation figures. But despite a growing number of jobs and a trend toward falling unemployment — both here and in the United States — inflation remains stubbornly low. This flies in the face of an economic principle invented in the 1950s by New Zealand economist William Phillips that remains a basic tenet of the relationship between inflation and unemployment. Bidding up wages Phillips noticed that when there was a strong demand for workers, wages got bid up, which allowed the workers to bid up the price of goods in the economy. In other words, low unemployment led to wage inflation, which led to price inflation. When there were few jobs and a glut of workers, prices, and thus inflation, grew more slowly. The Phillips Curve was celebrated as one of those simple-but-revealing economic relationships that offer economists a satisfied feeling that they are observing natural laws in action. It also seemed to offer a prescription: High unemployment could be solved with higher inflation. But for some reason or another, that relationship is not working anymore. Phillips' failure  Ottawa-based political economist Jacqueline Best has just returned from a research trip to the British...Read more
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