While average hourly earnings rose only 2.1 percent in the 12 months through August, some economists worry that an increase in wages would produce a burst of inflation.
That worry is misplaced, says Rex Nutting, assistant commentary editor for MarketWatch. "Higher pay won’t fuel inflation, because inflation is contained," he writes.
Consumer prices rose climbed just 1.7 percent in the 12 months through August. And the Federal Reserve's favorite inflation gauge, the personal consumption expenditures price index, advanced only 1.6 percent in the 12 months through July.
Thus wage gains barely exceed inflation, Nutting notes. The Fed has an inflation target of 2 percent.
"The recent historic record shows no tendency for inflation to get out of control on the high side, or for rapidly rising wages to force companies to raise their prices," he says. "Since 1991, the inflation rate has averaged 2 percent, and it’s been under 1.5 percent about a quarter of the time."
Others also say inflation isn't a worry now. Consumer prices dipped 0.2 percent in August, the first decrease since April 2013.
"There is still enough slack in the economy to keep a tight lid on price increases, which should support the view of those within the Fed arguing in favor of patience before the first rate hike," Anthony Karydakis, chief economic strategist at Miller Tabak, told Reuters.
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