Posted on January 12, 2006
Filed Under Uncategorized |
In spite of rising commodity prices, higher gasoline, bigger grocery and heating bills and a gold price at 25-year highs, there is still a huge missing piece of the inflationary puzzle, and that is wage inflation. It is wage inflation that holds the key to whether the current inflationary spike will be of lasting consequence, or merely an intermission to the disinflation / deflation that the US has seen since in recent decades.
To date, wage inflation has been kept in check by the forces of globalization and intense competition. Employers’ power to outsource work to cheaper locations around the globe has kept workers timid about demanding wage increases. Furthermore, the inability to pass on price increases in consumer goods has kept pressure on company margins, leading to pressure on worker salaries and benefits.
If worker salaries remain under pressure, an increasing portion of their paychecks will be devoted to simply making ends meet: buying higher priced gasoline, heating their homes, groceries, etc. Not only will this decrease their discretionary spending, it will contribute to a psychology of consumer negativity and pessimism. This will drive consumers simply to conserve more – drive less, turn the thermostat down, shop for bargains, pay down debt and save money for hard days ahead. This is deflationary.
In short, the key to a real inflation is not just in gold and oil, but in wages. So what do you say people – are your wages / salaries going up? Any prospects for getting cost of living raise soon? Let us all hear it below! Looking forward to the responses.