How is post-pandemic wage growth affecting service-sector inflation?
Slowing wage growth in some parts of the service sector could help reduce inflation in 2024 and 2025, according to a new report from the Cleveland Fed.
Higher wage growth in the leisure and hospitality sector tends to be almost immediately followed by higher inflation in that sector, but in the education and health services sector the impact of wage growth on inflation is delayed by about a year, writes Ina Hajdini, a research economist with the Cleveland Fed’s Center for Inflation Research.
Because of that delay, slowing wage growth in the education and health services sector will likely have disinflationary effects beginning only in late 2024 or early 2025, Hajdini writes. In the meantime, the slowdown in leisure and hospitality wage growth could possibly continue putting downward pressure on inflation.
However, there is not a statistically significant connection between wage growth and inflation in the two other main parts of the service sector – financial and business services and trade and transportation services. Thus, it’s unclear whether reduced wage growth in those sectors will lead to lower inflation.
Read the Economic Commentary: Wage Growth, Labor Market Tightness, and Inflation: A Service Sector Analysis
More on inflation: The Center for Inflation Research
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Media contact
Dani Carlson, Dani.Carlson@clev.frb.org, 216.672.1264
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