Gluskin Sheff’s David Rosenberg has previously warned that 2014 could see a return to inflationary pressures.
Take into account that income inequality is becoming a major concern — as evidenced at the World Economic Forum in Davos, and President Obama is expected to address it in the State of the Union as well — and wage inflation is expected to trickle into inflation.
Rosenberg now writes that there are “more signs of wage pressures.”
“The Fed’s Beige Book contained no fewer than two dozen references to wage pressures and skilled job shortages and in sectors that cover around 40 million workers. I realise the average hourly and weekly earnings data from the non farm payroll survey are tepid but a big disconnect seems to have emerged between those measures and the broad wage/salary growth numbers out of the National Accounts data. After all, if Macroeconomic Advisors is anywhere near the ball park, nominal GDP growth is now advancing at over a 5% YoY clip and we know that this is not because of booming profit growth any more.
“So returns to labour seem to be a proper theme. And what we get in return from whatever margin compression occurs will be social stability — income inequality is becoming a serious issue (Davos) and must be tackled. Hence the push by a variety of states to boost the minimum wage. To this end, I did notice this little ditty in the weekend FT — Organised Labour Held Steady in ’13 on page A5 — keeping in mind that unionized workers have much higher median weekly earnings). In any event, the multi-year drop in union membership rates came to a screeching halt in 2013 at 11.3% and now we have more in the private sector (7.3 million) than in the government (7.2 million) which has not happened in a very long time.
“But make no mistake, there is a deepening policy rush in this direction while it may well represent responsible fiscal policy, I also sense a return to some cost-push inflation as a result (and no, globalization with no longer bail us out — not with China’s unit labour costs now rising at a double-digit annual rate).”
Rosenberg has previously said that inflation is “a long-forgotten word in central banking parlance,” and that this could prompt the Fed to scale back its asset purchase program at an even faster pace.
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