As high inflation continues to grip the United States, major corporations intend to raise wages.
Roughly 39% of respondents in a forthcoming Conference Board report said that rising price levels are a motivating factor for the wage hikes. However, higher pay does not necessarily correspond to higher living standards — since President Biden took office, Americans’ inflation-adjusted wages have been declining.
The Wall Street Journal reported:
A survey by the Conference Board set for release Wednesday finds that companies are setting aside an average 3.9% of total payroll for wage increases next year, the most since 2008.
The survey also shows that companies are planning on raising salary ranges, which would result in higher minimum, median and maximum salaries. That suggests pay raises could be broad-based and affect workers across a company’s pay scale. The results are a sign the recent acceleration in private-sector wages is likely to carry over into 2022.
The outlet also noticed the inflationary spiral that could be induced by simultaneous wage and price increases:
Such a sustained rise in wages could push consumer prices higher, as companies raise prices to compensate for pay increases. The dynamic of higher wages and prices could further stoke inflation and increase the chance of a spiral of rising wages and prices feeding on each other that could be difficult to stop.
“The impacts of wages on inflation and of inflation on wages are now stronger than they have been in recent decades,” said Conference Board chief economist Gad Levanon.
The most recent inflation data from the United States Department of Labor reveal that consumer prices are increasing at a 6.2% rate — consistently outpacing economists’ expectations and matching rates last seen in the early 1990s. Indeed, Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell recently said that policymakers should retire the term “transitory” as a descriptor for the current inflation environment.
The Organization for Economic Cooperation and Development slashed its global economic growth projections after noting that the rebound is “losing momentum” — primarily due to supply chain bottlenecks, lockdowns, and scarcity of certain materials, all of which are contributing to stronger-than-expected inflation:
Alongside cost pressures from manufacturing supply bottlenecks and food price increases, imbalances in the energy market are a key factor driving up inflation in all economies. Gas prices have risen sharply, notably in Europe, and risks are high, with storage levels around 28% lower than they would normally be at this time of the year. Rising food and energy costs are inevitably hitting low-income households the hardest.
Inflationary pressures are proving stronger and more persistent than expected a few months ago. Consumer price inflation in the OECD is now projected to start fading in 2022, before moderating as key bottlenecks ease, capacity expands, more people return to the labour force and demand rebalances. The Outlook underlines the risk that continued supply disruptions, perhaps associated with further waves of COVID-19 infections, may result in longer and higher inflationary pressure.
The OECD raised next year’s inflation projections for the United States from 3.1% to 4.4%. In 2023, the group expects inflation to reach 2.5%.