https://www.nytimes.com/2023/04/07/business/economy/wages-prices.html
Wages and inflation have been rising at the fastest pace in decades, but it has not been an even match back and forth as inflation has managed to outpaced wages in 22 consecutive months.
The economists are fearing the there will be a wage-price spiral, a phenomenon where higher prices lead to higher wages, which then feed on each other to create a spiral.
Sonal Desai, the chief investment officer for Franklin Templeton Fixed Income suggested that "wages are high enough that inflation is potentially unstable". While the Fed has stated the cause for inflation is mainly due to the Ukraine war, supply chain issues, shifts in consumer spending trends, employee cost is remain important to the "underlying inflation" rate: upward price pressures without these shocks.
Chairman Powell also commented in March that "some part of the high inflation is very likely related to an extremely tight labor market". This is building upon his remark in the fall that "strong wage growth is a good thing, but for wage growth to be sustainable, it needs to be consistent with 2% inflation".
2 comments:
It seems as if in this article that inflation might be high right now but it won't stay that way forever. Once the high rates start dropping I would be curious to see the effects versus wages. Since wages have been increasing also but tend to be "sticky downwards" there could be many implications for inflation dropping but wages staying high.
I understand the fear of a wage-price spiral, but considering wages have not caught up to inflation in 22 consecutive months, this is a good indication that an increase in wages would actually be healthy so that consumers are able to afford goods and services after inflation. I think targeting the employment market in economic policy in order to slow down inflation will not be the final solution because the fear of a recession will become too high and ultimately be a self-fulfilling prophecy.
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