WAGES, PRICES CONTINUED TO SPIRAL UPWARD IN SEPTEMBER

In September, the Personal Consumption Expenditures Price Index—the U.S. Federal Reserve’s preferred gauge of inflation—rose at 6.2 percent, year on year.

The core index, which ignores food and fuel prices, edged up from 4.9 percent in August to 5.1 in September, its fastest climb since March.

During this year’s third quarter, workers’ compensation also rose.

The Employment-Cost Index, which measures workers’ overall pay and benefits, was up 5 percent from a year earlier, the U.S. labor department reported, down barely from its record clip in the second quarter, when it climbed the fastest since March 2001.

Service workers gained the most, at 7.7 percent, with retail, leisure, hospitality, and nursing also showing strong improvements. Employees in financial, management, and professional services saw the smallest bumps.

Adjusted for inflation, private-sector workers’ pay declined 2.7 percent in the last quarter from the same period in 2021, the U.S. labor department said.

However, because workers’ compensation grew little during the second quarter and inched down in the third, some analysts see the figures as a sign that “we are moving past the firmest period for wage inflation,” JPMorgan Chase economist Daniel Silver told The Wall Street Journal.

Employers are seeing less competition for workers and are becoming more selective about who they hire, the WSJ reported.

The stubborn growth in wages and prices adds weight to expectations that the Fed will add another three-quarters of a point to its key interest rate when the central bank’s Open Market Committee meets this week.

It would be the sixth rate hike this year and would boost the central bank’s benchmark rate to between 3.75 and 4 percent.

TREND FORECAST: The Fed has feared a wage-price spiral, in which each rises in response to increases in the other. That kind of spiral is hard to rein back.

With wages and prices growing alongside each other, the Fed will be under pressure to continue its aggressive rate increases, even at the expense of jobs and economic growth.

Many analysts, and several Fed officials, are forecasting that the Fed will add 75 basis points to interest rates this week and then scale back to half-point hikes. 

If inflation and wages refuse to cool off on their own, the Fed will continue its three-quarter-point hikes into next year, but as we forecast, they will lower rates into the run-up of the 2024 Presidential Election to keep the incumbent party in power.