> The experts were worried about a so-called wage-price spiral. This occurs when workers expect inflation to keep rising, so demand — and achieve — higher salaries to keep up with price rises. Businesses then raise the prices of goods and services to cover higher labor costs, at the same time as workers have more disposable income to increase demand. This creates an inflationary loop, or in the language of economists, “second-round effects.”
> But while concerns this time around aren’t totally gone, what’s being discussed more frequently now is the fact that a wage-price spiral has not occurred in the 18 months or so that inflation has been running red-hot in much of the world.
> “What we’ve seen in the last year is prices rising very rapidly, but wages have not increased nearly as much, and that’s why we have a cost of living crisis,” Gourinchas said, after noting that core inflation remained high in many countries and in some cases was increasing.
> “We should expect wages to catch up eventually and people’s real income to recover,” he said. Real income refers to wages adjusted for inflation, reflecting changes in purchasing power.
> But the increase doesn’t present a risk because “the corporate sector has been sitting on pretty comfortable margins,” Gourinchas continued. Businesses’ revenues “have risen faster than costs, and so margins have room to absorb rising labor costs.”
Tangentially, Powell cannot destroy aggregate demand via the benchmark rate in a way that materially impacts the unemployment rate due to structural demographics. ~2 million people over the age of 55 die every year in the US. ~3 million Baby Boomers retire every year. 55+ workers clinging to the participation rate is holding a lot of this together.
https://www.barrons.com/articles/the-labor-market-bends-towa...
https://seekingalpha.com/article/4531829-older-workers-propp...