Whether rising wages actually translate into inflation is key for markets. History shows that’s not always the case.
“Recent expansions have seen a pickup in wage growth without a meaningful acceleration in inflation, a point noted recently by various [Federal Open Market Committee] participants,” Alexander added. “In addition, households’ long-term inflation expectations have remained relatively stable, if not declining somewhat, despite a notable pickup in expected income growth, suggesting that inflation expectations may not respond to higher wage growth.”
Also, LaVorgna said rising wages actually could be deflationary as they could eat into company profit margins.
At the worker level, a boost in income should come as welcome news.
Workers have seen little gain in real wages for the past generation, as low productivity, demographic shifts and technological changes have allowed companies to have their picks of employees without having to meaningfully raise pay.
A tighter labor market, in which there are now fewer eligible workers than job openings, is changing that dynamic.
“What’s more important is whether wage growth is outpacing inflation. That hasn’t really happened,” said Andrew Chamberlain, chief economist at job search site Glassdoor. “Look below the surface. What areas of the country are seeing pretty strong wage growth and what are jobs are seeing strong wage growth?”
Chamberlain said big population centers like San Francisco and New York City are seeing boost. He added, though, that some of the biggest percentage gains are coming among lower-skilled positions like retail cashiers, bank tellers and bartenders.
“Companies are facing shortages,” he said. “Those that need low-skilled workers are starting to raise pay.”
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