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Labor shortages show promise of reviving inflation: OECD
August 24, 2017 / 12:49 PM / 3 months ago

Labor shortages show promise of reviving inflation: OECD

BANGKOK (Reuters) - Localized labor shortages, notably in Japan and the United States, are finally bringing the promise of higher inflation but only stronger growth will really drive it higher, OECD Secretary General Angel Gurria said on Thursday.

Angel Gurria, Secretary-General of the Organisation for Economic Cooperation and Development (OECD) speaks during an interview with Reuters in Bangkok, Thailand August 24, 2017. REUTERS/Jorge Silva

The Paris-based Organisation for Economic Cooperation and Development had said in June the global economy was on course this year for its fastest growth in six years, but a resurgence in inflation has yet to materialize.

“You’re getting to a point where you are starting to see localized labor shortages and a natural reaction, finally,” Gurria told Reuters in Bangkok.

“It’s good but normally you would have expected that you would have gotten positive signs of wage increases a long time before you are almost at full employment.”

Gurria said that European and Japanese central banks in particular would need to keep monetary policy “on the lax side” for some time to encourage higher growth at a time of uncertainty.

“Inflation is the manifestation, it’s not the problem, it’s growth that is the problem,” he said, pointing to weak demand, consumption and investment because people lacked confidence about the future.

The possibility of a shutdown in the U.S. government after a threat by President Donald Trump over funding for a border wall with Mexico could bring added uncertainty but would ultimately be resolved, he said.

“In the meantime there is stress and ideally you’d choose not to have it,” said Gurria, a Mexican economist.

He said it was too early to judge the impact of Trump’s “America First” trade policy amid fears of protectionism as the United States starts renegotiating the North American Free Trade Agreement and promises to tackle its big trade deficits.

“There’s a lot more in the speeches than there has been in the policy decisions simply because the processes are only just beginning. It’s a little early,” said Gurria, in Thailand for the setting up of an OECD programme.

Reporting by Matthew Tostevin; Editing by Nick Macfie

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