Heard on the Street: So far, rising inflation has had more to do with the pandemic than rising labor costs. But that could change.
What the Fedis an environment where wage increases are pushing prices significantly higher, while a tight labor market and expectations of higher inflation are leading workers to command outsize wage increases. That could lead to inflation remaining well above the central bank’s 2% target, forcing it to raise rates sharply, and risk a recession.
To a degree, the rise in inflation over the past year reflects a rebound from the early stages of the pandemic, when prices cooled significantly. Even so, core prices have risen at a 3.3% annual rate over the past two years, which is the fastest pace since June 1993., while service price gains have been muted. Core goods prices have risen at a 6.1% annual rate over the past two years, the most since March 1983. Core services prices have risen at a 2.
. Goods have also been at the receiving end of the demand shift the pandemic brought on: Unable or unwilling to spend money on services such as airline tickets, Americans bought more stuff instead. Rising wages have surely put some upward pressure on prices, too, but thus far they are largely secondary. If the pandemic loosens its grip, helping to alleviate supply-chain problems while provoking a shift in spending back toward services, inflation will cool.How much it will cool. Rising labor costs could put a floor on how much price gains can moderate.
The tight job market and high inflation might not be feeding one another now, but that doesn’t mean they won’t in the future.
France Dernières Nouvelles, France Actualités
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