In recent years, despite the improving global backdrop and more synchronised economic expansions across both developed and emerging countries, there has been an absence of broad-based inflationary pressures, with wage inflation unusually weak, despite tightening labour markets. Meanwhile, most asset prices enjoyed solid gains, as very accommodative monetary conditions helped boost capital markets. The result – a growing wealth gap in society. The graph below shows the share of national income going to the richest 1%.

Source: World Wealth and Income Database,
T Rowe Price. As at 30 September 2016

Can the growing inequality be addressed?

While it’s impossible to fully predict the impact of central banks unwinding the distortions they have created, it’s important to ask if there are any longer term secular drivers that could lead to an era of lower wage inflation, making it more difficult to address growing inequality?

In short, the answer is yes.

These drivers include:

• technology which is improving efficiency and unlocking capacity, including human capital
• demographics and ageing populations, which impact spending patterns
• excess debt of sovereigns, leaving them unwilling or unable to undertake substantial expansionary fiscal policies.

This means that despite political pressure, redistributing wealth in the years ahead may not be that easy.

If you would like more information please call 1300 ELSTON or email info@elston.com.au and an adviser will be in touch.