For all the hype that wage growth has received this year, pay isn’t keeping up with price growth. Real earnings, or wage growth less inflation, turned sharply negative the last two months, after eeking out gains over the summer, consumer price data out Friday show.
Why it matters: That’s an erosion of spending power, which is a bummer. But for the time being, it takes the edge off worries of a wage-price spiral, which happens when higher wages fuel inflation, which fuels the need for even higher wages — and so on.
- The most recent data, of course, doesn’t tell us where we’re headed. “But you can try to extrapolate based on trends … and it seems like this fear of a wage-price spiral might not play out if wages aren’t actually keeping up with inflation,” Megan Greene, chief economist at the Kroll Institute and senior fellow at Harvard Kennedy School, tells Axios.
The big picture: Wage growth and price inflation are closely intertwined, but like the proverbial chicken and egg, experts have different views on what causes what.