Damaging price increases aren't happening, certainly not because of big raises to most workers.
When wages rose 3 percent in January, the narrative became that this was destabilizing the market. The reason: Investors feared inflation would emerge, hurting stock prices. My take was little different: It was due to worry over that the Federal Reserve, with a new and untested chairman, might overreact and jack up interest rates so much that this aging expansion fizzled out. Even so, apparently the problem is now that most American workers are rolling in so much wealth? I don’t think so.
If you check the Wage Growth Tracker of the Atlanta Fed, the January wage growth is actually below rates seen in 2016 and much of 2017. Inflation remained unusually subdued. Not only that, but wage growth was around 5 percent in the last few years of the 1990s expansion, and inflation was tame.
The long view is sobering: Since the early 1970s, the typical worker has seen wage growth of only 0.2 percent a year, adjusted for inflation. The high inflation of the ’70s was caused by oil shocks and a long build-up of inflationary pressures from the previous decades — and accommodative Feds. This stagflation — slow growth and roaring price increases, the fear of all inflation hawks — wasn’t caused by workers.
Indeed, wages and productivity have disconnected. Despite high productivity through most of those years, most workers saw few benefits in their paychecks. Policies to favor the wealthy investor class and large corporations have brought labor’s share of national wealth to the lowest level since modern records began in the late 1940s. This is true even in prosperous metros. For example, the average weekly wages for Seattle-Tacoma-Bellevue rose only $483 in real terms from 1990 to the second quarter of 2017.
Meanwhile, growth of the consumer price index remains below similar timeframes in recent expansions. Of course, this doesn’t guarantee a sure-footed central bank. But if the party ends, don’t blame workers.
Today’s Econ Haiku:
To keep up with Amazon