Economists have been betting on consumers shifting their spending from goods to services to take the pressure off supply chains and help moderate inflation. The addition of rapid wage growth, as employers increase salaries to attract workers, may keep overall inflation high as companies struggle to cover costs, reports The New York Times.
Jason Furman, a Harvard economist who served as a top adviser to President Barack Obama, told the New York Times that the shortage of workers in many service industries means that if demand for services goes up, prices will too and a shift in spending back to services won’t necessarily result in an overall slowdown in the pace of price increases.
“An awful lot of services are incredibly constrained,” he said. “As we shift back to services, we’ll get more services inflation and less goods inflation, and I don’t think it’s at all obvious that the result of that is less inflation.”
Some economists believe that if goods inflation slows, that could still balance price gains, even amid rising wages. Prices for products that last a long time rose 11.6 percent in the year through January, and prices for shorter-lived products like cosmetics and clothing were up 7.2 percent, still much stronger than services inflation.
Rent plays a big role in determining inflation overall and has also been rising at a rapid clip, with listed rents in cities from Tampa to Spokane up by 30 percent or more in the fall from a year earlier, according to data from Apartment List.
Nick Bunker, the director of economic research for North America at the Indeed Hiring Lab, said conditions remain tight—there are 1.8 job openings for every active job seeker today—but the data suggests that labor shortages are no longer actively worsening, which could at least keep wage growth from accelerating further.
“The labor market is stronger, tighter, hotter than it was before the pandemic, but there are some signs that it is starting to level off,” said Bunker.
It is also possible that higher wages will lure workers back into the job market, helping to offset labor shortages and allow conditions to settle into a more sustainable path. Full Story
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