Tight global labour market suggests inflationary pressure will rise further

The global unemployment rate is plummeting. France’s unemployment rate fell for the 24th consecutive month in May, reaching a 25 year low; Italy’s unemployment rate dropped to an all time low in the first quarter of this year, while Spain’s unemployment rate has fallen from 21% a decade ago to 8.5%. Likewise, the Japanese and German jobless rates stand at 9 and 12 year lows respectively. The UK unemployment rate stands at just 2.7%, close to post-war lows. Even in the troubled US economy, the unemployment rate has steadily fallen to 4.5%.

In this graph (click to enlarge), I’ve created a rough proxy for the global unemployment rate by taking the average rate for Europe, Japan and the US. Data availability for Europe prior to 1993 is lacking, but it’s easy to see that the unemployment rate is on a downward trend and has broken below the lows of 2000.

Very low levels of unemployment in the Western world are not what you’d necessarily expect from rapid globalisation. The media and trade lobbyists would have you believe that the outsourcing of jobs to the cheap labour economies of China and India has caused rampant unemployment, but this is clearly not the case. The economies of the US, Europe and Japan are in fact operating close to full capacity, and this has historically resulted in inflationary pressure through higher wages. Any further signs of inflationary pressure will serve to quicken the pace of rate hikes


The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Richard Woolnough

Job Title: Fund Manager

Specialist Subjects: Government and corporate bonds

Likes: Running, cycling

Heroes: Mohammed Ali, Winston Churchill

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