Weekly Economic Briefing

Efficiency matters

24 November 2015

Global Overview

  • 2015 has been a weak year for inflation. Most countries have seen a plunge in commodity prices push headline rates down to very low levels, at a time when core inflation was already running well below central banks’ targets.
  • As commodity price effects dissipate, the development of unit labour costs (ULC) – wages adjusted for productivity - will play an important role in shaping the inflation outlook.
  • In the US and UK, the recent tightening in labour market conditions should start to gradually push ULC higher. This should set the stage for rate increases, especially in the US given the Fed’s dual mandate.
  • While the ECB has started to erode labour market slack there is more to do before wage pressures build. Meanwhile, in Japan Abe is struggling to change wage setting behaviour which has helped to entrench falling ULC.
  • Many emerging markets have seen their competitiveness undermined by faster ULC growth than their trading partners. Recent currency adjustments have helped to cushion this effect, but productivity-enhancing reforms are needed.


We expect only modest unit labour cost growth in the coming months, underpinning weak inflation. Given the Fed’s dual mandate, we may see rate rises in spite of this.



Evidence suggests domestically-generated inflation is starting to accelerate from unusually low levels. The BoE needs to see increased price pressures before it raises rates.



Weak unit labour cost growth in the Eurozone is adding to concerns about inflation in the region. ECB stimulus should remedy this – although this medicine will take time to work.


Japan & Developed Asia

Japan has seen a sustained period of falling unit labour costs during its lost decades. Abe’s economic programme has yet to break this cycle.


Emerging Markets

Falling or flat productivity has caused unit labour costs rises across many EM economies. Currencies have adjusted to maintain competitiveness but productivity-enhancing reforms are needed.


Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

The views and conclusions expressed in this communication are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any specific security.

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