Yet policy makers continue to play down the risk of a sustained inflation outbreak, arguing that any price spike will unwind as supply-chain blockages gradually ease. Federal Reserve Chair Jerome Powell has repeatedly argued that inflation pressures will prove transitory. ECB President Christine Lagarde made a similar case last week.
While U.S. wages rose faster than expected in the last two months, Goldman Sachs Group Inc. economists led by Jan Hatzius predict pay growth won’t stoke inflation, with the supply of workers set to increase dramatically over the coming months as fear of the virus wanes and a pandemic-era boost to unemployment benefits expires.
In Asia’s biggest economies, price pressures are more subdued. Japanese wages unexpectedly snapped an 11-month decline in March, though not at a pace to trouble the Bank of Japan’s 2% inflation target. China’s consumer inflation is expected to stay under 2% this year, according to People’s Bank of China Governor Yi Gang, comfortably below the government’s official target of about 3%.
“Only the U.S. is presently characterized by labor shortage, rising union power, and rising wage demand,” said Taimur Baig, chief economist at DBS Bank Ltd. in Singapore and a former International Monetary Fund official. “Nowhere in Asia or Europe do we see such markers.”
‘It Takes Years’
Also set to keep the brakes on wage gains is the world economy’s diverging path to recovery. While the Paris-based OECD has revised up its 2021 global growth forecast to 5.8% from 5.6%, it warned that living standards for many won’t return to pre-crisis levels for an extended period.
The Geneva-based ILO calculates that global labor income in 2020 was 8.3% lower than it would have been without the pandemic, and it warns that growth in the productivity of labor will remain at less than two thirds of pre-crisis levels.
All of this has left most policy makers and economists focused on supply bottlenecks as the chief culprit for this year’s surge in prices. How long it takes to resolve those issues could determine whether they trigger a more lasting bout of inflation.
“The growing risk is that temporary pressures last long enough to be embedded in expectations and trigger wage pressures,” said Klaus Baader, global chief economist at Societe Generale SA. “Since it takes years to stoke a wage-price spiral, we won’t know the final answer for some time.”
—With assistance from Stephen Spratt and Zoe Schneeweiss.
This article was provided by Bloomberg News.