Economy News

U.S: Wages rise as inflation pressure is soaring

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According to the Wall Street Journal (WSJ) on the 14th (local time), the U.S. Consumer Price Index (CPI) rose 5.3% in August from a year earlier, which was not significantly lower than July’s 5.4% rise, which was the highest increase in 13 years. Workers’ real wages are reportedly down again.

CPI rose 5.3 percent from a year earlier in August in the U.S, according to the Labor Department and the Federal Reserve Bank of Atlanta. As a result, workers’ real wages, adjusted for inflation, declined by 0.5 percent. Prices rose even more than nominal wages, so real wages fell by 0.5 percent.

Comparatively, in 2019, prior to the Covid-19 pandemic, real wages increased by only 2.1 percent annually.

The rate of wage growth for workers earning the top 25 percent of wages was higher than the rate of growth of 2.8 percent over the same period.

A higher rate of inflation

During and after the pandemic, product prices rose rapidly in the U.S. due to the contraction of international supply chains and pandemic-related shortages.

Automobiles, for example, were affected by a shortage of semiconductors, resulting in higher prices for new cars, used cars, and rental cars.

Supply chain problems continue to contribute to inflationary pressure.

Considering that inflation is expected to continue, the rate of growth in nominal wages alone will determine whether or not workers’ real wages rise.

According to a July WSJ survey, economists predict inflation will rise to 4.1 percent by the end of the year, before falling to 2.5 percent next year and 2.45 percent in 2023. They estimate it will be difficult for the foreseeable future to return to the average annual inflation rate of 1.8 percent prior to the pandemic.

Contrary to recent trends, nominal wage growth is expected to slow again in the future.

The reason for this is that as factors such as the face-to-face shutdown, the spread of the pandemic, and federal income support fade or gradually disappear, labor supply will expand again, weakening the bargaining power of workers.

Josh Bivens, research director at the Economic Policy Institute (EPI), a left-leaning think tank, predicts that workers will lose some of their wage bargaining power as the labor shortage eases.

“The factors that have tipped the labor market over time will not last,” Bivens explained.

Labor supply is expected to increase as factors that suppressed it disappear, and the number of low-wage workers will increase, putting more pressure on wages.

Diane Swonk, chief economist at Grant Thornton, also predicted that the spread of delta shifts would negatively affect wages for low-wage workers.

For MetaNews.

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Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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