Looking for inflation (in all the wrong places)

Bank of England Governor Mark Carney is warning that the day when the Bank starts raising interest rates is "getting closer".   Well, duh.  As my mother would have said, "so is Christmas",  though there's the obvious difference that we know precisely when Christmas is going to arrive, whereas Carney is just being a tease.  He's concerned that after more than half a decade of ultra-accommodative monetary policy, financial markets are becoming complacent and less risk-averse as they search for returns in a low-yield world. The same might be said to apply in real estate markets, in London and elsewhere.

If that's the case, then what's holding the BoE and other central banks back?  As this article reporting a speech by Carney's new Deputy Governor makes clear, it's mostly the lack of any evidence that wage pressures are increasing.  Fed Chair Janet Yellen has repeatedly made a similar point regarding the US. But why would anyone expect rising wage pressures?  Unions have been forced on the defensive worldwide; labour laws have been amended in favour of employers; globalization means that corporations are constantly moving production from jurisdiction to jurisdiction in search of lower costs; firms are systematically replacing full-time jobs with part-time and contract positions. How are wages supposed to rise in these circumstances?

If the key drivers of wage trends were cyclical, then it would be appropriate for central banks to monitor labour markets closely and to warn of the need to tighten policy once signs emerged of wage cost pressures.  As it is, all the evidence seems to suggest that what we are seeing is a sustained, secular fall in wages  -- or, as it's increasingly commonly expressed, a long-term rise in income inequality.  If this is the case,  labour market trends are the wrong place for central bankers to focus on as they set monetary policy.

So where should they be looking instead?  Here's a clue: when Carney made his statement-of-the-obvious, UK share prices promptly took a dive.  For the last couple of years we have been living in a world in which asset prices (real estate as well as stocks) have been pushing ever higher, even though the vital signs of the world economy remain below par.  As anyone who was watching aghast as the Greenspan era imploded could tell you, pumping money into the system creates an asset price bubble.

Are the central banks really going to make the same mistake again, so soon after cleaning up the mess from the last time?  Global equity markets have suffered some sharp reverses in recent days, so we may soon find out.  Carney, with his Ottawa-bred caution and with an eye on the hyper London property market, probably won't be swayed from his intent to start tightening within the next few months.  But I'm not nearly so sure about his counterpart in Washington.  What price the "Yellen put"?