Friday, August 12, 2011

Wages vs. Prices

In response to one of our 'members' (actually, the only member we have!) question/comments regarding wages, we put together some charts (below) describing changes in wages and prices over the last 5+ years, including the last recession.  We decided to use the PCE price index as the great Fed uses this to get an idea about inflation.  We note that the wages data exclude government (state, local and federal) wages.


As displayed above, it is pretty clear that the core CPI (which excludes food & energy) has been creeping up a bit since late last year. Also, it appears that wages started becoming a bit more volatile after Q1 '10.

The chart above displays the behavior of wages and a variety of inflation measurements, including the one that the Fed uses, PCE price index. It shows how wages have remained pretty much flat when compared to CPI and PCE price index. Lastly, growth in both core CPI and PCE price index caught up and passed growth in wages. As we saw in the monthly chart, these indicators are pretty volatile, so although overall prices will likely drift down a bit given the latest downturn in energy prices, it may take some time before the core CPI and PCE lose their upward momentum.

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