Slowing Wage Increases Are Behind Optimism Inflation Will Remain Low
WASHINGTON -- The outlook for low inflation goes beyond the latest consumer price report, and the reason is wages.</br></br>The growth in labor costs is definitely slowing. When the recession started in July 1990, hourly earnings were running 4% above the year before. Now, hourly pay is only 2.5% above year-earlier levels. For the full year, analysts widely predict that labor costs will rise less than the 4.4% increase of 1991.</br></br>Many inflation optimists peg their good mood on wage costs. "With nominal wage increases gradually easing . . . the odds of seeing a further gradual reduction in the core rate of inflation are quite favorable," says Federal Reserve Board Gov. Susan Phillips.</br></br>A recent survey of economists by Blue Chip Economic Indicators found nearly 60% cite modest increases in wage and benefit costs as a key reason prices are likely to remain subdued through 1993.</br></br>Joe Elling, a senior economist with Weyerhaeuser Co., a supplier to the construction industry, says, "Labor costs are going to remain slow, especially in the construction industry, for at least a few more years. We don't even talk about inflation."