Tuesday, October 7, 2014

Why Does Wage Inflation Remain So Low? (excerpt)

There certainly has been no sign of inflationary pressure on wages in US employment reports this year, including the most recent one for September released on Friday. Fears that the tightening labor market will lead to higher labor costs, which will boost price inflation, may be receding as a result. Wage inflation remains subdued at 2%.

Previously, I’ve argued that the “cost-push” model of inflation might be flawed. There may be several forces at work keeping a lid on price inflation including globalization, automation and robotics, debt-financed excess capacity, and global secular stagnation, particularly in Japan and the Eurozone. It may be that low price inflation is moderating wage inflation. As I observed last week, inflation-adjusted wages are rising, albeit at a slow pace.

Today's Morning Briefing: US Dollar, Inflation, & Earnings. (1) Is there a relationship between the dollar and expected inflation? (2) Fed tracking TIPS yield spread as expected inflation measure, which is falling recently. (3) Anchor aweigh. (4) TIPS measure in US actually reflecting deflationary forces in Japan and Eurozone. (5) There may be a simpler story. (6) Either way, the Fed is likely to normalize monetary policy very gradually. (7) Or else it might be either “one and done” or “none and done.” (8) Low price inflation keeping a lid on wage inflation. (9) Dollar may take center stage during Q3 earnings season. (10) Usually, strong dollar and weak commodity pricing not good for earnings. (11) Focus on overweight-rated S&P 500 Transportation. (More for subscribers.)

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