Soaring prices of goods such as new cars, gas, groceries and home furnishings drove U.S. inflation to a 40-year high. Now rising wages could make it harder...
Soaring prices of goods such as new cars, gas, groceries and home furnishings drove U.S. inflation to a 40-year high. Now rising wages could make it harder for the Federal Reserve to unwind the runup in inflation.
For the past year, high inflation was largely fueled by too much demand for goods and too little supply. Businesses couldn’t get enough materials to produce all the goods customers wanted because of pandemic-related shortages. And goods were in particularly high demand because people were afraid to go out.
Manufacturers, the producers of goods, can absorb the higher price of labor more readily because it represents a smaller portion of their total costs. As a result, service-oriented companies need even more workers, and the only way they are going to attract them is by offering higher pay.Over the past year the cost of services excluding energy has climbed to a 21-year high of 4.9% from as low as 1.3% at the start of 2021. Early in the pandemic the cost of most services rose relatively slowly because of weak demand.
Right now there are a record two job openings for every unemployed person, the highest level on record dating to 2001. The 1960s were probably the last time the labor market was as tight.
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