Wall Street Journal

Wages are probably the best indicator of underlying inflation and they’re going up. Average hourly earnings jumped 0.6% in November from October and 5.1% from a year earlier, up from 4.9%. While that’s in line with the range for 2022, there’s been a recent acceleration: Wages surged at 5.8% annual rate in the last three months, the fastest in a year. Non-management employee pay is even stronger, rising 0.7% in November from October and 6.4% annualized over the last three months. Stagnant labor supply is one driver: The labor force shrank by 186,000 in November and the participation rate ticked down to 62.1%, the bottom of its recent range. Higher wages are of course good for workers, but can only be paid for through higher productivity, lower profits, or higher prices. Productivity growth has remained sluggish lately and while profit margins are fat enough to absorb some increase in labor costs, demand is strong enough for companies to raise prices instead.