Could Rising Wages Push the US Inflation Rate Even Higher?

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With inflation in the United States already hitting its highest level in 13 years, Americans don’t need one more reason to worry about rising prices. But they could get one if employers decide to hike prices on certain items to help pay for steadily rising wages.

See: Hourly Wages Are Going Up But More Needs to be Done to Bring Workers Back
Find: Industries With Worker Shortages Despite Wage Hikes — You May Have Trouble Finding a Mover or a Veterinarian

Average hourly earnings in the U.S. hit $30.40 in June, according to data from the U.S. Bureau of Labor Statistics. That was up from $29.35 the previous year, a gain of 3.5%. Average weekly earnings climbed 3.8% to $1,054.88.

The rising wages are mostly due to a labor market beset by worker shortages in numerous industries. As GOBankingRates previously reported, many employers are offering pay hikes and bonuses to lure and keep workers. But even that hasn’t done much to fix labor shortages in certain sectors of the economy, with everything from sawmills to long-haul trucking firms still struggling to fill available jobs.

Meanwhile, the hospitality industry has been especially aggressive about hiking wages to attract more teen and other workers, a separate GOBankingRates article noted last week. Restaurant companies that have boosted pay include McDonald’s, Chipotle Mexican Grill and Darden Restaurants, which owns the Olive Garden chain.

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On the Indeed job search site, 4.1% of employers offered cash bonuses or other hiring incentives in June, CNBC reported on Thursday. That’s more than double the prior-year’s rate. Certain food prep jobs advertised bonuses ranging as high as $2,500.

One fear is that these developments could prompt companies to raise prices on goods and services to help pay for the higher wages — something that would only add to an inflation rate that is already among the highest this century.

See: This Is the Living Wage You Need in All 50 States
Find: The Effect of Stimulus Checks on Inflation & the Overall Economy

The Consumer Price Index rose 0.6% in May after climbing 0.8% in April, according to the most recent BLS data. Over the previous 12 months, the index increased 5% before seasonal adjustments, which was the largest 12-month increase since a 5.4% gain for the period ending August 2008.

But many government officials, including President Joe Biden, warn against getting too panicky about the impact rising wages could have on inflation. As CNBC noted, Biden said during a speech in May that the American economy has “more than ample room to raise worker pay without raising customer prices.”

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The Federal Reserve has also downplayed worries over inflation, suggesting that price pressures will fade over time as the post-COVID economy returns to normal.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.

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