Even though multiple talking heads at the Fed and Treasury’s Yellen have noted that there are “no signs” of a wage-price spiral, the data seems to me like it’s suggesting otherwise. We’d noted the possibility of a spiral in this thread in April, and revisited it a few times. Reproducing the key points from a pretty compelling synopsis from Bob Elliott below:
- US incomes are growing pretty consistently at 5-6%. (Image 1)
- Average hourly wages have increased by 5-6% also (Image 2)
- Wage growth rate is the highest its been in 40 years (Image 3)
- Labor market continues to be very tight (Image 4)
- As folks spend down savings, increase in spending will match up with increase in income
I don’t think the recent chatter around HH survey vs other survey data really affects this reality much.
This suggests that inflation might be becoming structural, and not cyclical/supple-side driven/“transitory.” And will make the sticky parts of inflation even more sticky. If the Fed finally acknowledges this sometime in 2023, it’ll seal in “higher for longer” for a while, with corresponding major upheaval to the long end of the yield curve.
