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Inflation, Employment costs and Profits: the US evidence Investment Insights • MFN

Inflation, Employment costs and Profits: the US evidence

Many commentators worry that high wage growth will prevent inflation from returning to central banks’ 2% targets soon. But two economic forces drive a wedge between wage growth and inflation. The first of these is productivity. Since productivity is generally rising over time, wage growth will exceed inflation on average. The second is firms’ profit margins. These tend to rise when inflation picks up, as output prices then often rise faster than firms’ costs. Wage growth can be seen as one way in which the economy returns profit margins to their earlier level. In this Macro Flash Note, EFG chief economist Stefan Gerlach looks at the US data.

Stefan Gerlach

6 min read
Markets unaffected by anti-Lula protests in Brazil Investment Insights • MFN

Markets unaffected by anti-Lula protests in Brazil

A week after Lula da Silva’s inauguration as Brazil’s President on 1 January, attention shifted from budget negotiations to the political protests in the capital Brasilia, highlighting the divisions in Brazilian politics. In this Macro Flash Note, Joaquin Thul explains how financial markets have remained largely unaffected by the protests which are also unlikely to change Lula’s strategy.

Joaquin Thul

5 min read
Misinterpreting inflation and the risk of recession Investment Insights • MFN

Misinterpreting inflation and the risk of recession

Will central banks continue to push up interest rates rapidly to ensure that inflation returns to their 2% inflation objectives, at the risk of triggering recessions? The answer to that question may hinge on how they think about inflation. Conventional measures of annual inflation remain high in the US and the eurozone. Although still above 2%, alternative measures that are more sensitive to current inflation pressures are much lower, particularly in the US. In this Macro Flash Note, EFG Chief economist Stefan Gerlach concludes that while continued tight policy is warranted in both economies, it is time for both central banks to slow the speed of rate increases.

Stefan Gerlach

6 min read

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