Many investors judge that this unusual combination of low unemployment and low inflation can persist for quite some time – perhaps, that it is now normal. With inflation rates having surprised on the downside for a few years now, there is unusually low compensation for future inflation risk in many financial markets.
Real income growth for many households has also been unusually slow in many countries. Not surprisingly, these households, including many here in Australia, wonder whether this slow growth in incomes is now the new normal, or whether in time it will pass. Much depends upon the answer to this, including households’ appetite and ability to spend and borrow.