Globally wages, CPI unlikely to rise sharply - Nomura

According to Takahide Kiuchi, Research Analyst at Nomura, the failure of wages and CPI to rise as much as generally expected amid tightening of labor supply-demand is a puzzle that perplexes not just Japan but the world’s other major economies as well.

Key Quotes

“In Japan, companies’ diminishing longer-term growth expectations have been a structural depressant on increases in the basic pay of regular employees since around the turn of the century. This structural factor makes a rise in the overall pace of wage increases unlikely. Considering this factor, wages and consumer prices are unlikely to rise at a faster pace even if supply-demand in the labor market and the overall economy continues to tighten.”

“In this environment, the economy is unlikely to heat up and the financial markets are likely to remain optimistic that monetary policy normalization will move forward cautiously and gradually. In other words, the economy is likely to remain in a Goldilocks state, or a moderate economic climate in which growth is neither too hot nor too cold. However, amid this optimism, one should also be aware of the potential for excessive risk taking and mounting imbalances in the financial markets.”