Today’s official U.S. inflation figures made it somewhat more difficult to argue that the recent strong price increases recorded in the American economy are “transitory,” as the Federal Reserve and many observers (like me) have been claiming. But they don’t make these contentions that much harder, and that goes at least double for warnings about rampant wage inflation – which today’s related real wage figures debunk in an especially powerful way.
At the same time, the price surges that have taken place deserve to be emphasized in another, generaly neglected sense: However temporary, they represent another cost of the unprecedentedly powerful and not-surprisingly chaotic, bottleneck-ridden U.S. economic reopening – and one that’s followed unprecedentedly sudden CCP Virus-related lockdowns that in retrospect look to have been needlessly sweeping because the pandemic’s worst health effects were so highly concentrated among vulnerable groups like the elderly.
The most troubling development revealed in the new inflation report was the May-June acceleration in price increases overall – from 0.74 percent to 0.88 percent. That was indeed the largest monthly rise in absolute terms since June, 2008 (1.05 percent). But that May figure represented a deceleration from April’s 0.92 percent. So it looks way too early to claim that we’re seeing even the start of one of the most dangerous threats posed by inflation – a pickup in its momentum created by cost rises in various parts of the economy fueling efforts in other sectors to compensate with price increases in a process that eventually ripples widely, and with lasting effects, as in the 1970s.
(As with previous posts, I’m not too concerned with the year-on-year comparisons, since pricing trends in lockdown-y 2020 were so – artificially – weak.)
More evidence for the transitory faction: Leading the price increase charge in June were products and services like used cars and trucks (up 10.5 percent month-to-month), vehicle rentals (up 5.2 percent), and hotel and motel rates (up 7.9 percent). The first is a clear result of the stop-start nature of the economy during the pandemic period (see here for a cogent explanation), and the second and third just as obviously spring from the cabin fever-spurred burst of vacation travel in which Americans are engaged with the arrival of summer and the waning of the virus.
Even in sectors like these, moreover, signs of weakening inflation can be seen. For example, the monthly rate of hotel and motel inflation was much higher than May’s 0.4 percent. But it was lower than April’s 8.8 percent. As for airline fares, their monthly price increases have fallen from 10.2 percent in April to seven percent in May to 2.7 percent in June.
As for wages – they keep falling in real terms in most of the economy. That is, they’re rising more slowly than inflation for goods and services. According to this morning’s data (which also cover June), after-inflation wages both for all private sector workers and for private sector production and other non-supervisory employees fell sequentially for the sixth straight month. And for both groups, the monthly June declines (0.53 percent for the former, 0.62 percent for the latter), were the biggest in roughly a year (June for the former, July for the latter).
(As known by RealityChek regulars, the U.S. government doesn’t track real or pre-inflation wages in the public sector because pay levels there are determined largely by politicians’ decisions, and therefore say relatively little about the status of the labor market.)
These new June wage figures are even more striking because the declines last year stemmed largely from businesses letting go less of experienced and usually therefore lower-paid staff as the economic outlook remained highly uncertain, and pushing up the average pay levels of remaining employees even though actual raises were rarely handed out.
It’s true that real wage increases continued in June in the leisure and hospitality super-category – whose eating and drinking establishments and hotels and motels and resorts were hit so hard during the peak pandemic months. But the June sequential increase for all employees in this sector inched up at the lowest rate (just under 0.15 percent) since January (just over 0.15 percent).
Leisure and hospitality production and non-supervisory workers fared better last month – their constant dollar wages rose by 1.16 percent, a big speed up from May’s 0.50 percent. But the April (1.87 percent) and February (1.21 percent) hourly inflation-adjusted pay hikes were stronger still. So again, it seems awfully premature to talk about raging wage inflation even here.
Moreover, there’s an important difference within leisure and hospitality between real wages in the restaurants etc sector and those in the hotels etc sector. Specifically, the latter have been growing faster for production and non-supervisory employees – and especially for June alone (0.94 percent versus 0.52 percent).
The January-June results are even more striking for these service workers as a whole, since during this period, real wages for their counterparts in the overall private sector are actually down 1.83 percent.
Good luck to you if you believe these numbers describe a crisis-level national labor shortage, or even close. And as I see it, it’s nearly as much of a stretch to argue on the basis of these hot June numbers that comparably hot inflation is here to stay.