Jobs, growth and inflation ain't what they used to be
In the 20th century, it was easier for central bankers. When growth rose and the jobs market got tighter, prices and wages went up. It was macroeconomics 101 in real life.
Then borders disappeared.
As globalization took hold it changed the equation in ways that central bankers still don't understand. Prices and wages don't go higher because anyone asking for a raise can be offshored; any company that tries to raise prices risks being undercut by a foreign competitor. At the same time, the pace of technological deflation is accelerating and it's driving costs down as well.
This is the age of oversupply so the supply/demand equation doesn't work like it 'should'.
That's leaving central banks justifying rate hikes by pointing to financial risks and asset markets. That's fine, but let's call it what it is.
The only central bank that has an inkling that the models are broken is the ECB. Draghi has begun talking about a "structural shift" in the labor market that will restrain wages and inflation.
The latest central bank to get the wake-up call is the Bank of Canada. The data has been super-strong throughout the year and they just shifted to a hawkish bias. Strong retail sales yesterday sent the loonie more than a cent higher yesterday but today the May inflation report missed estimates and is now at 1.3% y/y compared to 2.1% in January. Looking ahead, oil prices are down almost 20% this month as technology (shale) leads to an oversupply of crude.