Sector metal workers were asking for a 2% salary increase over the inflation rate, making for a nominal increase of 9.5%.
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Consumer spending in August stalled as well, advancing only 0.1% in real terms as rising prices subtracted 0.4 percentage points of the 0.5% nominal increase in sales.
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Nominal incomes do increase, but this is merely a response to the inflation that has already been created.
To get there, with the monetary base unchanged, you would have to increase nominal GDP (mostly through price increases) by 70%.
However, as the economy regains steam and loan demand increases, those excess reserves will enter the marketplace and increase nominal spending and prices.
Indeed, while their earnings may increase in nominal dollar terms, the very devaluation that Johnson seeks will properly cause investors to dismiss the increase as entirely illusory.
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The possibly sharp increase in nominal interest rates would tend to reduce demand for base money.
We think this will require higher real interest rates in the U.S. either a decline in inflation or an increase in nominal rates.
But in the case of goods that change in quality every year, it is much harder to split an increase in nominal ouput or spending between a change in volume and a change in price.
Our rule of thumb is that every one percentage increase or decrease in nominal GDP translates into one-to-one-and-a-half percentage point increase or decrease in tech spending by the private sector.
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The larger increase in the nominal size of both economies is explained by domestic inflation.
In nominal terms, this could increase the ratio significantly above 2:1.
In my opinion, there is little danger that nominal rates will outpace the increase in the rate of inflation until the Fed unwinds its balance sheet like it did under Paul Volcker 30 years ago.
Indeed, one reason why Japan's real output has grown more strongly than expected this year is that prices as measured in the national accounts have fallen faster, turning a fall in nominal spending into a significant increase in real terms.
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The purpose of stimulus is to increase demand (and thereby nominal GDP) over what it would have otherwise have been.
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But the increase in yield was just in nominal terms because the YoY change in the CPI jumped from 5.2% in January of 1977 to 14.2% in February of 1980.
True, small nominal pay rises will still give a real pay increase if inflation is lower.
Governments can increase their debt as long as the increase is less than the growth in nominal GDP.
Barclays is also expecting flat nominal retail sales growth, which implies a further increase in real retail sales growth on the back of a sustained pickup in property sales.
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The market is pegging 30-year inflation at a slightly higher 2.0 percent rate, which is the spread between long-term 30-year Treasury nominal bonds and 30-year TIPS. Federal Reserve policy to increase the money supply has not led to inflation during this recovery because the demand for money has been lower than in other recoveries when inflation did occur.
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By increasing the size of the monetary base (which the Fed controls to the penny), the Fed can increase NGDP, although it cannot control how much of the nominal growth occurs as inflation, and how much shows up as real output.
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However, an increase in the real exchange rate need not require a rise in the nominal rate.
An increase in velocity means that the same monetary base would support a higher level of nominal GDP.
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