Rising Inflation Outpaces Wages ‘Very Painful for the American Worker’: Economist Mark Zandi

Chief Economist at Moody’s Analytics Mark Zandi warned on Friday, shortly after the release of the march employment reportwhat wage growth is “strong”, but inflation it is “stronger”, which is “undesirable” and has many economic repercussions.

Zandi told FOX Business that “it’s important that we get inflation back down” and that he thinks that will happen “on the other side of the pandemic and the fallout from the Russian invasion of Ukraine, but until then it’s obviously very painful for Americans.” “. worker.”

On Friday morning, the Department of Labor revealed that the average hourly earnings increased 5.6% year after year in March, compared to 5.1% the previous month. but arising inflation — which hit a new 40-year high in February — has erased those potential gains for workers.

By that measure, the typical American worker is worse off today than a year ago, even though nominal wages are rising at the fastest rate in years. That’s because inflation is also skyrocketing.

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Zandi noted that “wage growth is strong” and that it was “more desirable for inflation to return than for wage growth to accelerate.”

Moody’s Analytics chief economist Mark Zandi warned shortly after the release of the March jobs report that wage growth is “strong” but inflation is “stronger,” which is “undesirable.” (iStock/Getty Images)

The consumer price index, which measures a group of goods ranging from gasoline and health care to groceries and rent, rose 7.9% annually, according to data released last month by the Bureau of Labor Statistics. Month on month, inflation rose 0.8%.

From January to February, almost all categories of goods and services became more expensive. Gas jumped 6.6% and accounted for almost a third of the price increases. Grocery costs rose 1.4%, the steepest one-month increase since 1990, apart from the pandemic-induced price spike two years ago. The cost of fruits and vegetables rose 2.3%, the largest monthly increase since 2010.

During the 12 months ending in February, grocery prices rose 8.6%, the biggest year-on-year rise since 1981, the government said. Gasoline prices have risen 38%. And housing costs have risen 4.7%, the biggest annual jump since 1991.

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Zandi stressed that “three things” need to happen for the inflation rate to approach the Federal Reserve’s target of 2%, including the end of the pandemic, which has scrambled supply chains and the labor market, and is “the main reason for high inflation.

The economist also pointed out that “we have to get to the other side of the Russian invasion of Ukraine”, which has “exacerbated inflation” due to higher commodity prices, and that the Fed has to “normalize interest rates”. and “make them more consistent with where we are in the business cycle with a strong economy and lower employment and higher inflation.”

He argued that if those three things don’t happen “sooner rather than later,” the risks of recession over the next year are “high.”

Additionally, he noted that workers are certainly “under pressure,” noting that the typical American household is paying around $300 more per month to buy the same goods and services that they were buying at this time last year.

TO poll published last month revealed that less than 25% of American organizations say they are adjusting their salary budgets because of inflation, even though many workers have been asking for raises or other actions to help offset the higher prices they face for everything from food to gasoline. .

merce, a human resources consulting firm, confirmed to FOX Business that nearly half of the more than 300 US employers surveyed by the company last month do not factor inflation into salary budgets. The survey also revealed that less than a quarter of the organizations surveyed are making changes to their salary budgets due to price increases, despite the fact that 43% of employers said that workers have been asking them to increase wages. to help with rising costs.

According to the survey, the vast majority, 77%, of employers surveyed said that dissatisfaction with pay or the possibility of obtaining a higher salary at another company were the main reasons for turnover. Mercer also found that half of those surveyed said they will make additional pay reviews for some or all of their employees in response to rising inflation, an indicator that some employers may be concerned about losing workers if they don’t make changes.

“We’ve seen a lot of companies raise wages,” Zandi said, adding that the March jobs report data reflected that point.

He said it’s “not surprising” that employers are trying to manage the situation “without raising wages too much because if they do, it reduces their margins and profits and they have to try to overcome that in the form of higher inflation.”

“We don’t want a wage-price spiral to develop because if that happens, the risk of a recession will be even higher,” Zandi warned, noting that would result in the Fed having to “slam on the brakes even harder to break that cycle”.

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Zandi believes it would be “very constructive” for employers to focus on “improving the labor productivity of their workforce” as a way to address the current economic situation.

He explained that would include investing in technology, equipment and software, among other things, to “make their workforce more productive” and then companies can pay their employees more while maintaining profits and earnings growth.

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