Conventional wisdom says that rising wages feed through into rising inflation. Thus, the only way to reduce inflation is to tighten monetary policy until wages start to decline. But a research letter from Adam Hale Shapiro of the San Francisco Fed casts some doubt on this:
The estimates on both goods and housing services inflation are small and statistically indistinguishable from zero, as shown by the dark blue 90th percentile confidence bands around the point estimates. The impact of the Employment Cost Index (ECI) on NHS inflation is statistically significant, but the magnitude is quite small. A 1pp increase in the ECI increases the contribution of NHS inflation to core PCE inflation by 0.15pp over four years—an effect of 0.04pp per year. As ECI growth has increased by about 3pp from its pre-pandemic level, this means that labor costs have added approximately 0.1pp to current core PCE inflation.
Core PCE inflation is currently running at 4.7%, which means that labor costs account for only about 2% of the overall core inflation rate. That's insignificant. Labor costs could double or triple and still have only a minuscule effect.
So what is causing high inflation? As usual, I think it's primarily the effects of pandemic shortages and pandemic spending, which continue to linger. However, both are waning and core inflation, in turn, has already come down substantially. Over the next few months it will come down even more as pandemic effects (supply chain problems, high personal savings, the rent boom caused by eviction moratoriums, etc.) fully fade away.
Market consolidation is still going on.
It's market consolidation and greedflation all the way down.
This is not inflation as commonly understood. It's simply price increases because they can.
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Robert Reich has posted several times about "greedflation," which makes way more sense than supply chain issues from 2 years ago. One should also note that interest charged on the unpaid credit card balance is related to the prime interest rate. If the credit card companies collect more money from consumers then the consumers have less money to spend (duh) and so their buying power drops. Reduce consumer buying pressure and the retailers quit raising their prices every damn week.
Agree. I don't remember seeing any specific supply chain or pandemic shortages in the news recently (except certain meds, and that was an issue before covid). It is "greedflation"--corporate greed. Let's see some new charts on corporate profits.
I'm in the electrical contracting end of the economy and it is really hard to feel that current industry pricing is anything other than "charge what people are willing to pay". That is what economics tells us should be the case, but we had grown accustomed to competetive markets in most situations. Covid related issues put buyers in a frame of mind that we adjusted to expecting price increases. Competetive markets broke down. Manufacturers figured out that there are price points for products that people are willing to pay and there is no sense in gearing up production to sell more at lower margins. I hope that companies eventually will want to sell more, take business from competitors, but that's not where we are now. (What I'm describing mostly relates to stickiness in pricing that is already greatly inflated, and should be declining, but I'm still seeing price increases that are not explainable other than "cuz we can")
Fucking duh.
Inflation is never about wages.
> As usual, I think it's primarily the effect of ... pandemic spending ... Over the next few months it will come down even more as pandemic effects (..., high personal savings, ...) fully fade away.
I don' t see how you argue that it isn't wages causing inflation, just the spending and savings caused by high wages during the pandemic.
And also, there was that article recently about greedflation being fueled by consumers enabling the greed presumably because of higher wages.
As near as I can tell, a lot of inflation is driven by a lack of housing supply. And, of course, the way to drive down housing supply is to increase interest rates.
If every one of us quits our job and sets all of our money on fire, we can knock out inflation toot sweet.
Y'all go first though. I'll catch up later.
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