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Temporary inflation

Like it or not, we need to think about class conflict – because this is central to the question of where inflation is heading.

The standard model taught to my generation says that inflation arises from a “battle of the mark-ups.” When workers have the power to raise wages faster than prices, but employers have the power to raise prices more than wages, the result is rising inflation as wages and prices chase each other upwards.

Which explains why inflation was so low for so long since the 1990s. Thanks to the decline of trades unions and high unemployment, workers didn’t have the power to push for big pay rises. And globalization meant that few firms had the market power to push up prices more than costs.

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