LONDON (Reuters) - As far as financial markets are concerned, especially equities, the first half of the year has witnessed the curious phenomenon of reflation without the inflation.
Markets continue to defy gravity thanks to nearly a decade of unprecedented central bank stimulus, but economic recovery and record low unemployment across the developed world have failed to ignite traditional consumer price inflation.
The lack of earnings growth is central to this phenomenon. Yet again, wages is the dog that didn't bark in the first half of the year and there's little to suggest it will bare its teeth in the second half.
A decade on from the onset of the crisis, however, the world's top central banks are suddenly speaking with one voice, telling markets that record low interest rates and crisis-fighting stimulus measures will soon be unwound.
But if anything is going to give them pause for thought - and keep the global market rally going - it's subdued wage growth. There may be good reasons for tighter policy, but inflation isn't one of them.
Inflationary pressures are easing even though unemployment is falling, a combination that is at odds with history and conventional economic theory. The Phillips Curve suggests wages should rise as the labour market tightens, but the euro zone Philips curve has been largely flat since 2011.
The Bank of England aside, central banks are failing to meet their inflation targets. The Fed recently cut its inflation forecast to 1.7 percent this year from 1.9 percent, and the European Central Bank sees inflation at only 1.6 percent out to 2019.
Wage growth across the developed world is weak. It's only 2.5 percent in the United States and 2.1 percent in Britain. Thanks to the rise in UK inflation following the Brexit-driven plunge in sterling, real wages in Britain are falling.
There are many reasons for this: rapid advances in technology, automation, globalisation, falling trade union membership, demographic changes and fragmented labour markets thanks to more part-time, freelance and temporary work.
The growing consensus among central bankers now appears to be that monetary policy is powerless to influence any of that, so why persist with super-accomodative policy that will likely fail to achieve their goals and potentially create a host of problems down the road?
Much to policymakers' relief, the snails' pace of wage growth post-2009 has been offset by the rise in household wealth thanks to booming financial markets and higher house prices.
In the United States, household net wealth has soared by $40 trillion since the beginning of the expansion in 2009 to $95 trillion from $55 trillion. It is up $11 trillion in just the last two years.
So while wages may be stagnant, healthier household balance sheets should provide continued support for growth and stocks, particularly if the global tightening trend being laid out by central bankers comes to pass.
But market watchers can be forgiven for retaining a healthy dose of skepticism around central banks' intentions. They've been here several times before in the last 10 years, and each time they have erred on the side of caution.
According to economists at HSBC, the absence of wage pressures means the ECB will only scale back its asset purchases "gradually" throughout next year and the Fed will raise rates only once next year compared to the Fed's indicated three hikes.
Euro zone inflation won't reach 2 percent without a "meaningful" pick up in wage growth, particularly in Germany, they reckon.
Analysts at Rabobank agree. The ECB may be forced to begin unwinding its asset purchase program because of "technical factors" but the slow recovery in wages and core inflation means there will be no rate hike next year.
Reporting by Jamie McGeever; Editing by Toby Chopra