THE BASIS POINT

People’s incomes are rising fast. Will this fuel more inflation?

Wages and salaries among private sector workers spiked an annualized rate of 4.6% in 1Q 2021, which was the fastest rate since the series began in 2001, and occurred when the unemployment rate generally exceeded 6.0%.

What will happen to wage and salaries if/when the labor market strengthens further in coming months? With wages and salaries representing the largest cost for most firms, especially service providers, significant acceleration in labor costs, should it occur, could impart more upward pressure on the prices of many services, which account for three-quarters of the core CPI.

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People’s incomes are rising fast. Will this fuel more inflation?

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