Update of actual hourly and aggregate wages;  plus additional comments on consumer and producer inflation

by a New Deal Democrat

Let’s update some information related to inflation.

First, real hourly wages for non-executives rose by less than 0.1% in April. They are up about 3% from just before the pandemic, and also up just over 1% from their lows last June:

Note that the chart above is normalized to 100 from the previous long-term peak for wages in January 1973.

Next, real aggregate wages for non-supervisory workers tell us how much money the middle/working class earns in total, adjusted for inflation. This fell by -0.1% in April, but is 4.4% above its pre-pandemic level:

But the overall trend remains a very slow increase. Here’s what the year-over-year change looks like historically:

Note that when real aggregate wages go negative, this has *always* been a consistent indicator of a recession. At 1.7% higher year-on-year, this is on average for previous expansions and an important positive sign.

Digging a little deeper into the CPI report, aside from shelter, the big year-on-year increases were in food (13.5% weight of total value, unchanged over the past 2 months, but up 7.7% year-on-year base, down from a peak of 11.3% last August ); new cars (4.2% weight, down from -0.2% in April, but up 5.4% year-on-year from a peak of 13.2% in April last year); and something called “transportation services” (5.9% weight, down from -0.2% in April, but up 11.1% year-on-year, down from 15.3% last October).

So what exactly are ‚Äútransportation services‚ÄĚ? Here’s the detailed breakdown from the CPI report:

The two big items are motor insurance and repairs. This tells me that we still have a bottleneck in auto parts that affects both the production of new cars and the repair of older ones – especially since so many people are holding on to their older cars, given the prices of the new ones.

Finally, the producer price index for raw materials rose 0.1% in April after declines in February and March. Producer prices of goods for final demand rose by 0.2%. If that sounds good to you, it is. On an annual basis, raw material prices fell by -3.0% and finished goods prices rose by only 0.8%:

An important difference between the PPI and the CPI is that there is no “shelter” component in the former. Below are two long-term graphs of producer and consumer prices since the end of World War II:

With the notable exception of the 1980s and 1990s, when the labor force was growing due to both the entry of boomers and women, year-over-year declines in producer prices have always led to a slowdown in consumer prices as well. Since our current period most closely resembles the post-WWII booms of the Korean War, as well as 1981-82, when the Fed continued to raise interest rates in a declining inflation environment, this strongly suggests that consumer prices will follow producer prices this time too, despite producers’ efforts to maintain their recent spikes in consumer product prices.

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