Today's Good Job and Wage Numbers Don't Mean Inflation

At first glance, today’s jobs and wage report is likely to bolster Fed hawks intent on raising rates to prevent inflation. Hourly wages were up .5 percent in December – and 4.2 percent for the year – while inflation rose just 2 percent from November 2005 to November 2006. But dig deeper and there’s far less cause to worry about inflation. As reported by the Economic Policy Institute, the growth of real wages is still trailing productivity gains. Since 2001, real hourly wages are up only 1.8 percent while productivity growth is up 14 percent. That means the economy has lots of room to grant wage increases without pushing price increases. Also, more workers are entering the job market, and there are still many looking for jobs. Compare job growth since 2001 to job growth in the 1990s recovery, and this one is still anemic by comparison. So the Fed should stay calm. There’s no reason to raise rates. Inflation will stay well in check.