Is Post-Pandemic Wage Growth Fueling Inflation?

Abstract

Inflation in the United States surged after the onset of the COVID-19 pandemic, reaching levels not seen in four decades. Supply chain disruptions, extraordinary fiscal support for households, labor market shortages, and lockdowns and other public health measures contributed to this surge, which first manifested as goods price inflation. Nominal wage growth also increased significantly and has remained at levels above pre-pandemic averages, raising concerns that it could trigger a wage-price spiral and extend the current episode of high inflation. Indeed, the increase in wage growth has coincided with an increase in service inflation, which is known to be more persistent than goods inflation and to account for a majority of overall inflation.

Keywords: COVID-19, inflation, wage growth

JEL Classification: E24, E31