Bond Outlook January 3rd

The last months of 2006 saw the beginning of a reversal of a powerful movement evident in most Western economies since 2000, viz., that of higher corporate profits while wages and salaries hardly kept up with the cost of living. This phenomenon of “squeezeflation” is easily explained: competition in manufacture and tradable services from Asia weakened labour’s bargaining power, while companies were able to reduce costs through sub-contracting and “forced” productivity gains.