One key factor to keep an eye on is the job market and how it changes as the economic recovery moves forward. The pandemic continues to impact the U.S. Bill Kasko, president of Frontline Source Group, a job placement and staffing firm in Dallas, said that as gas prices in particular rise, employees are demanding either higher pay or work-from-home options to offset their increased commuting costs. Recruiters do report some early signs that inflation is factoring into pay decisions. Powell, said on Wednesday, though he noted that the central bank did not see such a trend shaping up. The Federal Reserve is “watching carefully,” for a troubling increase in wages, its chair, Jerome H.
Central bankers celebrate rising wages when they come from productivity increases and strong labor markets, but would worry if wages and inflation seemed to be egging each other upward.
Whether wage gains eventually eclipse inflation - and why - will be crucial for economic policymakers. The upshot is that the tug of war between price increases and pay increases has yet to decisively swing in workers’ favor. But the data on hourly earnings have been distorted by the pandemic, because low-wage workers who left the job market early in 2020 are now trickling back in, jerking the average around. Over the past year, that measure is up by 4.9 percent. That could make today’s quick inflation last longer than policymakers expect.Īnd an update to that gauge on Friday showed that wages climbed 0.4 percent in October, which is roughly in line with recent monthly price increases. That would benefit workers.īut troubling outcomes are also possible, and high on the list of worries is what economists call a “wage-price spiral.” Employees could begin to demand higher pay because they need to keep up with a rising cost of living, and companies may pass those labor costs on to their customers, kicking off a vicious cycle.
Wage growth could remain strong, driven by a tight labor market, and overall inflation could simmer down as supply chain snarls unravel and a surge in demand for goods eases. There are a few ways this moment could evolve. It is not yet clear which side of that equation - higher pay or higher prices - is going to win out, but the answer could matter enormously for the Federal Reserve and the White House.
But those same people are shelling out more for furniture, food and many other goods and services these days. American workers are taking home bigger paychecks as employers pay up to attract and retain employees.
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