Don't forget inflation!!

What if the US gets caught in the deflationary whirlpool that Europe is currently in? Pervasive economic weakness in the rich world and a slowdown in Chinese growth are leading causes for the sinking rate of inflation over the last few years, and oil prices haven't been much help either, pushing inflation into negative territory across much of the euro area. With inflation rates have dropping below 1%, the possibility is out there that the US may soon join Europe in deflation.

Besides that, inflation definitely deserves an observation for reasons beyond the possibility of deflation. When we think about jobs and the employment scene, we think a lot about looking at unemployment rates, underemployment rates and even job growth rates, but inflation matters in this too. When the economy is strong, we should be seeing signs of inflationary pressures, but with these inflation rates, that is a big sign that there's room for improvement in the economy. One of those improvements ought to be in wages.

Wages are positively related to labor productivity, which means that when labor productivity increases, so do wages, hypothetically speaking. If nominal wages increase faster than increases in labor productivity, then we will have inflation in the economy, or should have inflation in the economy, assuming that we're not dealing with stagnant wages (which we are!).