Bottlenecks, labour markets and inflation in the wake of the pandemic

Speech by Mr Hyun Song Shin, Economic Adviser and Head of Research of the BIS, G20 International Seminar "Recover together, recover stronger", 9 December 2021.

Bottlenecks in areas such as commodity markets, shipping and semiconductors have raised global inflation to levels not seen in years. These bottlenecks reflect a complex mix of supply constraints, strong demand and "bullwhip"-type behavioural responses. Bottlenecks have had a significant effect on inflation, particularly for durable goods. Their broader inflationary consequences will depend crucially on labour market developments. The latter display some strong similarities across advanced economies, but also some stark differences. In particular, in the United States – which experienced a sharp rise in unemployment in mid-2020 – it has become noticeably more difficult to match workers with job vacancies than before the pandemic. Such a change has not been observed in the euro area or Japan, where policies kept employee-firm matches intact. The causes of these developments, and their likely persistence, could have a significant bearing on assessments of labour market tightness, as well as on the likelihood that temporary bottlenecks could morph into a more disruptive wage-price spiral.