Thursday, September 07, 2006

Inflation Concerns

The Washington Post reports on the new wage and benefits statistics from the Labor department today.

Wages and benefits rose strongly in the spring, the government reported yesterday, providing a bit of good news for some workers -- and fresh concern about inflation. The statistic known as labor compensation, which includes wages and employment benefits, rose at a robust 6.6 percent annual rate from April to June, the Labor Department said...

Although this is good news for many workers, it barely dents the rise in oil prices. After adjusting for inflation, wages and benefits only grew by 1.6%.


This adds new fuel to the debate over the Feds fund rate and supports. The Fed reported mixed regional economic conditions yesterday, noting a fall in consumer spending, but sharp wage increases or pressure to raise wages. As usual, this sends contradictory messages. If the fall in consumer spending dominates, the Fed will not raise the Fed funds rate on Sept. 20th. But, if the Fed wants to be safe it will raise the Fed funds rate now, rather than allow inflation to gain momentum. Regardless of what happens on Sept. 20th, I expect inflation to force the Fed to raise interest rate at least one more time before the end of the year.

Posted by Peter.

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