The Surprising Thing About Inflation

Published on: 09/07/2021

Historically, inflation and wage growth have been tied together.  Tony Ogorek and Jeff Viksjo discuss this relationship by looking at the job market’s recovery from the pandemic.




Welcome to this edition of Chart Talk.  I’m Tony Ogorek.  I’m here with Portfolio Manager, Jeff Viksjo.  And Jeff Today we’re going to talk about inflation, and the fact that the common wisdom, the consensus on inflation, may be a little bit askew.  So, let’s take a look at the chart we’ve got today and this takes a look at wage growth in a variety of different industries.  So, what are you seeing when you look at this Jeff?


Yea so, inflation has been tied to wage growth historically; the more workers are getting paid the more they’re willing to spend.  So this chart is looking at wage growth by different industries.  On the left, we have wage growth over the last 3-months, basically in the recovery since the pandemic.  Then at the bottom is that starting wage for the industries with the lowest paid towards the left, the highest paid towards the right.  And Tony, we can clearly see that the lowest paid industries; leisure and hospitality, retail trade among them, have seen the highest wage growth over the last 3-months.


And you know Jeff, those are some of the toughest jobs out there.  Where you’re dealing with being porters, maids, servers, you’re people who are having to deal with the airline gates, and all that kind of stuff. So, it’s a difficult job, you’re dealing with the public, you’re exposed to more virus than knowledge workers.  And when you look at the federal minimum wage as $7.25 an hour, these people, generally speaking, are not getting paid a lot.  So, maybe what we’ve got, our market force is finally working for the benefit of these people, I think.


Yea, absolutely.  When you look at the headline inflation number, it’s scary. But as you dig deeper, you see that it’s only isolated to a few categories, like used car prices are soaring, that’s throwing the headline off.  You know, wage growth is very similar.  We’ve seen some headline numbers that maybe are a little higher than normal, but if you dig down you see that it’s isolated to a few industries, like you mentioned Tony, retail and hospitality.  They laid off the most workers in the pandemic.  They were the hardest hit.  So, of course they would have to pay a little bit more to get them back.


Right.  So, I think when you look at it through that lens, it’s sort of the invisible hand, as Adam Smith talked about in the economy.  Which is, if you want people to come back doing difficult work for you, you’re probably going to have to pay them a little bit more.

So, hopefully this view of inflation and wage growth has been informative for you.  And we look forward to seeing you at our next Chart Talk.

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Sister Emily Bloom September 07 2021

If the answer is paying "a bit more" for the "difficult work", then . . . that's the answer. But the employer deserves "quality work" for the "little bit more".