Tight labor markets have raised concerns about the role of labor costs in persistently high inflation readings. Policymakers are paying particular attention to nonhousing services inflation, which is considered most closely linked to wages. Analysis shows that higher labor costs are passed along to customers in the form of higher nonhousing services prices, however the effect on overall inflation is very small. Labor-cost growth has no meaningful effect on goods or housing services inflation. Overall, labor-cost growth is responsible for only about 0.1 percentage point of recent core PCE inflation.

Spoiler: Not very much at all

  • ericjmorey@beehaw.org
    0·
    1 year ago

    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.

    What are the implications here?

    • anji@lemmy.anji.nlOP
      0·
      1 year ago

      Prices (PCE) have gone up a lot. Wages (ECI) have gone up a little. So logically most of the extra money everyone pays for goods and services (inflation) is going somewhere other than wages…

      • coldredlight@beehaw.orgM
        1·
        1 year ago

        Coincidentally, profit margins in certain industries have significantly expanded during this same period. It really does look like a lot of “inflation” was more like profiteering, many companies used the panic about inflation to push prices up regardless of actual costs.