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WAGES, INFLATION ON THE RISE

The U.S.’s economic bounce pushed prices 4 percent higher in June than they were a year before, according to the Personal Consumption Expenditures Price Index, the U.S. Federal Reserve’s preferred gauge of inflation.
The 4-percent rate is the fastest since 2008. And according to The New York Times, it is a rate greater than analysts had expected during the recovery.
Prices edged up 0.5 percent in June compared to May, less than the 0.6 percent median forecast by economists Bloomberg surveyed.
Removing food and energy from the index gives a more accurate signal of long-term price trends. Doing so still yields an inflation rate of 3.5 percent for the month.
Many analysts believe that the post-crisis surge in spending has largely satisfied pent-up demand and that inflation’s pace will slow as shortages and supply-chain clogs are solved, the NYT said.
However, “the problem is that many of the factors”—including the Delta virus variant—“that are reducing the supply of goods and labor are elongated and continue,” chief economist Constance Hunter at KPMG, told the NYT.
“This prolongs many components of the [economic shutdown] that were causing inflation,” she said.
Household incomes rose 0.1 percent in June and 0.9 percent in this year’s second quarter, the U.S. labor department reported, a sliver of the gain needed to keep pace with inflation.
Wages rose faster among leisure and hospitality businesses, where pay was up 2.8 percent in the second quarter and 6.1 percent over the past 12 months, the NYT said.
TREND FORECAST: With many businesses suffering the inability to hire staff, the harder it is to hire people, the higher the wages workers will demand. Therefore, if wages continue to climb, employers will need to increase prices to cover the higher cost of labor, stirring workers to push for even more raises so they can afford the higher prices, setting off an inflationary spiral. (See “Fed Holds Firm on Policy Despite 5-Percent Inflation,” Trends Journal, 20 July 2021.)
And while Fed chair Jerome Powell said “There is a form of wage inflation that can lead to price inflation, but we’re not seeing that now,” looking into the future we can see price inflation. What will slow it down is a global economic crash that may well be infused by the Delta variant mandates and national lockdowns such as those in much of Australia. 

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