Return of inflation to be associated with neoliberal capitalism end - Natixis

FXStreet reports that analysts at Natixis note that neo-liberal capitalism has led to disinflation, linked to the choices made to increase profitability and very low real interest rates, which mean wealth accumulation. A shift to another equilibrium, with higher inflation, interest rates close to the growth rate and reduced wealth inequality would require an end to neo-liberal capitalism.

“The objective of neo-liberal capitalism is mainly to increase corporate profitability to obtain a high return on equity for the shareholder. With this objective, neo-liberal capitalism has implemented: skewing of income distribution against wage earners and, therefore, low wages; offshoring to low-labour-cost emerging countries in order to reduce production costs; tax competition between countries, with lower taxes on profits in particular; strong investment in fossil fuels, the cost of which is low and corporate concentration enabling monopoly rents to be obtained.”

“While corporate concentration is inflationary, all the other characteristics of neo-liberal capitalism are disinflationary. Disinflation has enabled central banks to keep interest rates very low and also allowed real interest rates to remain very low, which explains a second characteristic of neo-liberal capitalism: wealth accumulation due to a rise in asset prices and increased wealth inequality.”