Under-employment subdues Inflation in the U.S.

by Laura Ehrenberg-Chesler on February 17, 2011

in Economic Indicators,Employment,inflation/deflation

For the past few weeks Marilou and I have been blogging about the rising force of inflation around the globe.  The U.S. has not been immune.  Our cost of food and energy is rising too.

However, one factor that may keep inflation in check for the near future is what might be termed “under-employment”.  The most recent improvement in the unemployment rate may be masking a new reality.  Many of the jobs people are taking offer lower pay, fewer hours and worse benefits than the jobs that disappeared during the recession.

These lower wages act as a constraint on inflation.  Individuals who are making less, generally spend less, thus keeping the prices for certain goods and services low.  If this turns out to be the case, we can expect the Fed to maintain interest rates near historic lows, at least for the first half of the year.

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