Inflation Watch – Bob McTeer Edition

Former Dallas Fed President Bob McTeer gives his reason for low inflation expectations. The M1 and M2 numbers (as well as low velocity of money, which he doesn’t specifically mention) were generally familiar. What was even more interesting were the unit labor cost and productivity data. Dr. McTeer sees no cost push inflation. With this kind of pressure on earned wage income, it’s not likely we will see demand pull inflationary pressure either.

News reporting on unemployment is almost exclusively focused on headcounts. Unemployment rate X = Y number of people out of work. I would argue that a better metric is gross wages, which would also capture the effect of people working with lower income. It is the gross wages, not the number employed, that drives aggregate demand in the economy. My conclusion, like Dr. McTeer, is that there is not much inflationary pressure in the US economy. Asian economies are another story.


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