It’s a recurring truth in economics that things carry on for longer than you can imagine, but then change faster than you expect. We might be experiencing one of those transitions right now. The last two decades saw slowing global growth, low inflation, falling interest rates and booming asset prices. Is it possible that a combination of the Covid restart and the invasion of Ukraine are accelerating us into a new economic regime, with higher inflation, rising interest rates and faster wage growth? If we really are heading for a rerun of the Seventies then some central parts of our national debate will change fundamentally.
Since before 2000, the deflationary regime we’ve lived through has been driven by powerful trends: globalisation, technology and demographics. The rapid integration of China into the global economy added hundreds of millions of workers into the global labour market, reducing the bargaining power of workers in the developed world. Companies then offshored their supply chains to cheaper locations, resulting in lower prices for their goods.
