The price -wage relationship has been broken by massive off shoring and destruction of our manufacturing base
It is now very possible to have price inflation without wage inflation because low cost imports from low wage and low cost to manufacture foreign countries keep the lid on wage pressure and prevent wage increases to American workers
In fact, under our brave new world order,rather than ignite a traditional old school price-wage inflationary spiral, price inflation actually puts deflationary pressure on domestic wages as domestic producers scramble to reduce their costs to offset inflation driven higher priced raw goods and other inflated costs .
Domestic producers are stuck between the rock and a hard place because they cannot rise prices because of competition from cheap foreign imports and yet they are faced with increasing costs for raw goods, regulatory burdens, and (until recently) energy costs.
One of the few places they can cut is worker wages so they are faced with the choice of decreasing labor costs or going out of business.
This has been going on since late 1990s when the rise of China threw conventional economic wisdom out the window.
This is also why the Fed has been able to keep interest rates so low for so long without creating a serious inflationary spiral.
It is also one major reason why the Feds low interest rate policy has not been able to accomplish its desired economic goals.
You can't overheat a fire when have reduced the logs to smoking embers no matter how much air you blow over it. All efforts to force more air to blow over the embers just burns them out faster without generating any more heat.
And that is exactly the situation we find ourselves in
Sucks to be us
We may see inflation eventually, but by then things could be so screwed up it may be sudden and hyper inflationary.
Until then, unless our foreign competition is forced to raise their prices, all inflation will accomplish is to drive wages lower or put companies out of business as domestic producers.
The only real solution is to reinvigorate our domestic production but every policy the Obama Admin has enacted across the board does exactly the opposite
Obviously, none of this is sustainable in the long term so eventually something will have to give at some point in the future.
Hope I'm not around when it does
That sure is the feeeeling everyone seems to have. Of course, hard numbers in bank accounts/payrolls tell a different story (which is what we base our decisions when we're sober) but hey, this is the FR and feeeelings rule!
Getting close to opening bell so I need to get back to the facts that
--the price-wage relationships always obey the laws of supply and demand,
--off shoring is considered "massive" by folks that want to outlaw it all together,
--destruction of our manufacturing it the best fanatasy/scifi story around since Godzilla.
To this workforce, many of which are illegal to boot, what are slave-labor wages by American standards look to them to be high wages.
Our loss is their gain for sure, plus USA taxpayers subsidize many of their in-country benefits.