FED: Wage Growth Reflects Inflation Passthrough, Not Labor Market Imbalances - Cleveland Fed

• Cleveland Fed research finds that the “increase in wage growth [during and after the pandemic] largely reflects the pass-through of higher inflation and does not reflect labor market imbalances” when using a new empirical wage Phillips curve model.
• Looking ahead, their model forecasts a decline in wage growth to about 3% annually by 2025, interpreted as consistent with the inflation target. Specifically, wage growth is seen declining to 3.3% Y/Y by 4Q24 and 2.8% by 4Q24 against a backdrop of inflation at 2.6% and 2.2% respectively.
• Should inflation remain fixed at 4.1%, the annualized rate in 1Q23, wage growth would barely decline from 4.7% Y/Y in 1Q23 to 4.6% Y/Y 4Q25.
• Link: https://www.clevelandfed.org/publications/economic-commentary/2023/ec-202313-postpandemic-nominal-wage-growth-inflation-passthrough-or-labor-market-imbalance?

Source: Cleveland Fed