'It is worth noting that wages have not been driving inflation, unlike in the 1970s wage-price spiral. Wage growth has been lagging price growth, as there has been a shift from wages to profits since the pandemic.'
With the high rate of inflation reported for March, the chorus for strong measures from the Federal Reserve Board is growing louder. The idea is that the Fed needs to substantially accelerate its pace of rate increases. This will slow economic growth, increase unemployment and then put downward pressure on wages.
One of the ironies of much reporting on inflation is that it has claimed that lower income people have been hit hardest by inflation. In fact, wage growth has been most rapid in the lowest paying industries, such as restaurants and convenience stores. It will be interesting to see if news stories tell us if these low-paid workers are doing better when the rate of inflation has slowed, but they’ve lost their jobs.
The industry will scream bloody murder if the government were to take these paths to lowering prices for drugs and medical equipment. They would say that they would not have the money or incentive to develop new drugs and medical equipment. Anyhow, as is the case with the pharmaceutical industry, there is both a direct effect on inflation and an indirect one. The direct one is interesting because it is not actually picked up in the Consumer Price Index or other measures of inflation.
The same story applies to pension funds and other pools of wealth. Of course, this one is difficult politically because most people do not want to believe that they are throwing their money in the toilet by trading. Also, for pension fund managers it is very embarrassing to admit that they were handing workers’ money to rich people in the financial industry for nothing.
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