The Federal Reserve emphasizing the need to keep an eye on inflation finds merit once again, this time in the form of wages and benefits for laborers throughout the economy. On a non-seasonally adjusted basis, compared to last year, this previous quarter saw a 4% increase in costs associated with wages and benefits. Unfortunately for consumers, it seems to be that firms are able to easily pass the increase in costs to consumers as December 2021 saw a 4.9% increase in the core PCE index. Through the same time window, average hourly wages rose only 4.7% compared to a year earlier.
Economists cite multiple reasons for the current spike in inflation, which is the largest increase since nearly 1980. The most prominent sources are an overwhelmed supply chain, pressure on the supply side on commodities and labor, and an increase in wages coupled with the lowest unemployment rate we've had since before the pandemic. Jerome Powell noted that the Reserve is keeping an eye on rising wages and the increase in production we've been seeing.
The effect of inflation on services, products, and wages are causing concern in financial markets as well. JPMorgan Chase & Co. saw a dip in stock on an announcement that costs will see an 8% increase in 2022. In the past month alone, the Dow Jones has experienced a dip of 4.8%. It is ever more important for the Fed to keep an eye on inflation at this point as wages are traditionally sticky downward, and if companies are passing on increased labor costs to consumers, it may be difficult to damper the increase in prices in the immediate future especially if as economists predict, we see a rebound in consumer spending in the first quarter of 2022.
U.S. Wages, Benefits Rose at Two-Decade High as Inflation Picked Up - WSJ
I think this is interesting because it just seems like lately all we are talking about is the supply chain and the supply of labor. I am curious to see if firms and the government have any other plans besides increasing wages to fix some of these issues from the past few years.
ReplyDeleteIt seems like some of the US policy makers nowadays are not fully aware of what certain changes will cause. For example, significantly raising minimum wage sounds good on paper, but it could be extremely dangerous. People having more money to spend is great, but the problem is that businesses have to raise prices to be able to afford workers. Those businesses that cannot keep up with the change will simply go under, which means that small businesses will begin to suffer. Additionally, those at the top of the US economy will either not be affected that much due to their sheer amount of income, or they will raise prices so much that the middle class can no longer afford their product or service. If our goal as a nation is to bring equality to those living in poverty, we should at least attempt to create that equality without lowering the standard of living of the average American. This is very dangerous in my opinion, and the 0.2 deficit between the increase in wages and the PCE index is just a small sample of what could happen.
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