(Re)Politicizing inflation policy: A global political economy perspective (original) (raw)

Abstract

This article investigates the political and social outcomes of low-inflation policy as it relates to labour market policy and wages. Current policy orthodoxy assumes there are indomitable negative costs associated with inflation; as such, Central Banks are tasked with maintain price stability to ensure economic growth and global competitiveness. Critical political economists challenge in these assumptions tend to focus almost exclusively on the ambiguous relationships between low inflation, monetary policy and real economic growth. Examining the politics of low-inflation policy and labour market reform adds a new dimension to this critical research agenda. Using the United States and the United Kingdom as case studies, two policies designed to control inflation and adopted as part of labour market reform are examined: promoting increased product market competition and indexing wage increases to price levels using the consumer price index (CPI). These two policies reveal how controlling wage-led inflation, and all the related distributional outcomes, at the heart of low inflation policy. Finally, with inflation rates rising quickly across the US and the UK the politics of inflation have again entered the public domain. Again, we see that policy makers are looking to labour markets, not monetary policy, to quell inflationary pressures. Wage-earners must take real wage cuts to ensure a rebounding of economic growth. For all intense and purposes, it appears the politics and vigilance against wage-led inflation is paramount in Anglo-America, whether the actual inflation rate is low or high.

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