Inflation Threat May Be Boosted by Changes in Globalization, Demographics and E-Commerce

Economists see shifts in these long-term trends putting upward pressure on prices

By Gwynn Guilford of The WSJ. Excerpts:

"Global trade more than doubled from 27% of world gross domestic product in 1970 to 60% in 2008, buoyed by falling barriers to trade and investment. In the U.S., it soared from 11% of GDP in 1970 to 31% in 2011. Global competition compelled companies to build elaborate international supply chains, sourcing materials and products in the cheapest possible place. They were aided by access to cheap labor, as the fall of the Berlin Wall and China’s shift toward a market economy in the 1980s and 1990s more than doubled the workforce integrated with the global economy."

"U.S. “core” goods prices, which strip out volatile energy and food prices, rose just 18% between 1990 and 2019. Prices for core services, most of which are produced domestically, surged 147%."

"But the benefits of globalization “would appear to have been largely spent in a number of respects, not the least of which is the move toward anti-globalization and increasing protectionism,” said Peter Hooper, chief economist for Deutsche Bank Securities."

"Laundry equipment prices fell 5.8% annually between 2012 and 2017. After then-President Trump announced tariffs on imported washing machines in January 2018, prices for washing machines shot up 12% in the first half of that year. Laundry equipment prices edged lower over the next year or so but are still at 2013 levels."

"A paper by Mikael Juselius, a Bank of Finland economist, and Előd Takáts, of the Bank for International Settlements finds lengthening lifespans initially nudge inflation lower because they spur earners to save even more for their retirement. Eventually, though, a rising ratio of dependents to workers adds to inflationary pressures."

"Nearly 14% of retail sales are now conducted online, more than five times as much as in 2005. The price transparency from having retail prices clearly marked and aggregated online, as well as advances in delivery speeds, forced businesses to compete on price both online and offline, and to face more rivals, a phenomenon sometimes called the “ Amazon effect.”"

"online prices fell an average of 4% a year from 2015 through 2019"

"Online prices have risen 2% since March 2020, according to Adobe data."