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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Joseph Beltran who wrote (5753)	8/21/1998 3:16:00 PM
From: Robert Douglas	Read Replies (1) \| Respond to of 9980

Joseph, Exactly where is the threat of inflation here in the U.S. at this point in time? First and most importantly it is in wages, which make up about two thirds of business costs. stats.bls.gov See chart on page 4. Wages are rising at about 4% a year, that is the fastest pace since 1990, which resulted in a recession brought about by Fed induced tight money. Fortunately during this rise in wage rates we have had a period of very low benefit increases. Unfortunately, as I pointed out in my last post, health care costs are perking up again after many years of quiescence. So what if wageless claims/unemployment are at a low? Many of the "new" jobs are in the service sector which does not create any pressure on wages. The US cannot continue to add jobs at the present rate because the labor force is not growing fast enough. Unless productivity growth rises, job growth will be inflationary. New jobs in the service sector are precisely the ones to worry about, since they have no foreign competition to keep wages in check. Manufacturing makes up only a fifth of output and declines in this area are being swamped by increases in other areas. The deflationary spiral which I was referring to is more significant when we look overseas; however, look at the CRB index at multiyear lows... The bigger problem overseas has been inflation, resulting from currency devaluations. IMF imposed austerity measures have been effective against inflation, but are far from causing deflationary spirals. Still, I believe it is prudent for these countries to begin stimulative measures on their economies. The CRB is at a low it is true, one that is overstated due to the decline in oil and the rise in the dollar - two trends which are unlikely to continue, certainly not at the pace of the recent past. -Robert