The biggest question mark in the economy remains: Is inflation going to accelerate to the point where the Fed feels compelled to pull forward the estimated timeline for hiking interest rates.
While there are many ways to measure inflation, and lots of moving parts within any given inflation gauge, the one thing the Fed really has its eyes out for is wage inflation, which is a sign that the labour market is getting tight, and that it may be team for the Fed to slow down a little bit on its easing.
The data on this front continues to be quite mixed.
The July Jobs Report, for example, showed that wage growth was practically non-existent, and was therefore nothing for the Fed to be concerned about.
But other indicators suggest that wage pressures are building.
This week we got the latest look at Unit Labour Costs, and it appeared to show that the cost of workers is going up.
Here’s how Barclays’ Dean Maki explained it:
…there were substantial revisions to data for previous quarters due to the incorporation of the recent annual revisions of the National Income and Product Accounts, and the revised data show slower recent growth in productivity and faster growth in unit labour costs. For example, the y/y growth rate of productivity in Q1 2014 was revised to 0.7% from 1.0%, while unit labour cost growth was revised to 2.6% from 1.2%. In Q2 2014, productivity increased 1.2% y/y, while unit labour costs rose 1.9%. This release also includes the broadest measure of compensation per hour growth, and this increased 3.1% y/y in Q2 2014. This suggests that compensation is growing faster than narrower measures such as average hourly earnings or the Employment Cost Index suggest. Overall, we view the rise in compensation and unit labour costs revealed in this report as a modestly positive influence on core inflation in coming months.
This chart, from Pantheon Macroeconomics, shows the noisy, upward trend:
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