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Strong wage increases cast suspicion that inflation will soon disappear

The rise in wages in September provided more fuel to the argument that the current pace of inflation could be longer than many economists expected.

The average hourly wage for the month increased by 0.6%, up 4.6% year-on-year. Over the past six months, wages have risen by an average of 6% annually.

Except for the temporary surge in 2020, this is the fastest annual pace since the Bureau of Labor Statistics began tracking measurements in March 2007. In addition, the annual rate of increase has exceeded 4%, and the labor force is tight, so this is the third consecutive month.Market and inflation Permanent than many experts expected..

Joseph Flavorgna, Chief Economist of Natixis’ Americas and former White House Chief Economist, said: “We’re having a hard time getting what we need and restocking our inventory because of the disruption in our supply chain. If you need higher inflation, it’s a great storm to keep an eye on what you want. is.”

Inflation is at its highest level in about 30 years, but with many economists The Federal Reserve Board believes it is “temporary.” It is a product of temporary pressure that quickly relieves and returns the rate to about 2% of normal levels.

However, the pressure felt in the market is not temporary.

Calego president David Laps, who manufactures luggage and other consumer products for major retailers, ridiculed the idea that inflation would soon decline.

“I laugh when I read very smart people in suits, especially the Fed, saying it’s temporary,” Laps said. “I don’t know when all this pressure came at once in the consumer product market.”

He said his company was forced to tweak along the supply chain line and scale to ensure that it could catch up.

“We have to be as agile as possible,” Laps said. “You need to understand in front of the container how to get it first, and then how to get it at the most competitive price.”

Sustainable price increases have multiple implications.

Impact on consumers and the Fed

At the most basic level, they raise questions about how long cash flush consumers will see the rapid pace of spending. August retail sales up 0.7% Economists thought consumer purchases would decrease.

But it is also important at the policy level.

Fed under consideration Pull back some extraordinary financial aid It provided during the pandemic, and Weak 194,000 non-farm payrolls increase in September Otherwise it may serve as a deterrent.

“This report was certainly enough to start tapering,” Laborguna said, using market terminology to reduce the Fed’s monthly bond purchases. “There is no reason for the Fed to wait.”

Other economists share the feeling that central banks can move forward and begin to moderately ease purchases that are currently set at a minimum of $ 120 billion a month. The Federal Reserve Board has indicated that it will begin tapering in December and may end its asset purchase program by mid-2022.

Although salary growth has slowed in the last two months, inflationary pressures from wages and prices are sufficient to convince many economists that the economy no longer needs much support.

“Overall, the most important point from an economic outlook is [September jobs] “Companies are paying higher wages and extending their working hours to meet labor shortages,” said Andrew Hollenhorst, an economist at Citigroup.

Wages are clearly rising, especially in some of the most hit sectors in the pandemic.

In the leisure and hospitality industry, monthly salaries increased by about 0.5%, and the industry increased by about 10.8% from a year ago. Retail wages rose 0.7% in September, up 6.2% from the same period in 2020.

“The upward pressure on wages is almost certain to continue for some time, another source of negative impact on employers and inflationary pressure, but in the coming months,” said Jim Beard, financial adviser to Plant Moran. It is also a factor that supports personal consumption. “

As a result, the Fed should maintain a tapered schedule. Announced in November, reductions may begin in December.

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Strong wage increases cast suspicion that inflation will soon disappear

Source link Strong wage increases cast suspicion that inflation will soon disappear

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