The latest data on wages and inflation, combined with last quarter’s contraction indicates flat growth paired with high inflation.
Friday brought a dose of bad news for Federal Reserve chair Jerome Powell:
- Wages and salaries rose at a record pace last quarter: 5.3% from a year earlier, according to the Employment Cost Index. Private-sector wages jumped ahead at an even faster 5.7% pace.
- Though many still aren’t seeing pay keep up with inflation. It’s a problem for the Fed. Brisk pay hikes may make it difficult to slow inflation if businesses keep jacking up prices to offset rising labor costs.
The Fed’s preferred gauge of inflation, which strips out food and fuel costs, reaccelerated — even more than economists expected.
- Core PCE rose 0.6% last month after holding at 0.3% since February, effectively shooting down any hopes this measure could be leveling off.
Core PCE rose 1.3% last quarter, or a 5.2% annualized pace.
- Final domestic private-sector sales — a good measure of underlying economic growth — came in at 0% in the April-June quarter.
“The rest of the economy might be slowing down, but wages are speeding up,” Indeed economist Nick Bunker says.
- “Competition for workers remains fierce as employers have to keep bidding up wages for new hires,” he added. “These red-hot wage growth statistics may fade in the near term, but there’s a long way for them to drop.”