American workers’ wages are rising, but are they enough to face inflation?

Employers continue to raise workers’ wages in the United States Faster than expected, but the increases were not enough to offset the faster rise in inflation.

According to data from the US Bureau of Labor Statistics, wages and salaries for civilian workers rose 1.4% in the second quarter and 5.3% over the year ending in June, according to the Employment Cost Index, and the data shows faster growth than in the first quarter.

The 12-month jump was the highest since the spring of 1983, although the quarterly change did not exceed the 1.5% increase in the fall of 2021. However, the picture is not rosy once inflation is taken into account. Where wages and salaries decreased by 3.5% over the past year, after adjusting for higher prices.

Harvard economics professor and former chair of the Obama Administration’s Council of Economic Advisers, Jason Furman, says the data shows that people are already lagging behind. “They are lagging, not because wage growth has slowed, but because price growth is too high. This is a worrying sign for the future,” he added.

The tight labor market during the Corona pandemic has forced employers to increase their compensation to fill vacant positions and retain their employees, even though the increases are not keeping pace with the cost of living. This adds to concerns about the duration and spread of inflation.

The Fed’s preferred employment cost index report, which closely monitors the extent to which high inflation increases wages, is to help it determine how much to raise interest rates. And last Wednesday, the US central bank decided to raise interest rates for the second time in a row by three-quarters of a percentage point as it tries to curb rising rates.

Federal Reserve Chairman Jerome Powell described the index as “important” because of how it accounted for the composition of the labor market. The data tracks changes in employers’ labor costs for wages and salaries, along with health, retirement and other benefits. The index is not subject to the same distortions as other measures, such as average hourly earnings, because it keeps the composition of the labor force constant.

In a recent research note, Robert Frye revealed that wage growth will not abate until the labor market transforms and weakens. Employers continued to add jobs even as the economy contracted in the second quarter. She suggested that price growth will start to slow before wages are raised. “You need a higher unemployment rate and more slack there to bring wage increases back down,” she said.

Overall, growth in employer compensation costs slowed slightly in the second quarter, to 1.3%, before inflation. That compares to 1.4% in the first quarter but was still slightly higher than the growth that economists had expected.

However, over the year to June, total compensation costs jumped 5.1%, a faster pace than the 4.5% increase for the year to March. Growth in benefits costs, which takes into account the amount paid for retirement, health and other benefits, fell to 1.2% for the spring quarter, compared to 1.8% in the previous quarter. Benefits costs are up 4.8% in the last 12 months, compared to 4.1% in the year to March.

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