(TheRedAlertNews.com) – Higher inflation may be extended thanks to the U.S. economy experiencing the worst labor shortage in nearly 100 years.
In a note to clients, Goldman Sachs economists led by Chief Economist and Global Investment Research Division Head Jan Hatzius estimated the U.S. worker shortage had reached 4.6 million workers, the highest worker shortage since World War II. The deficit accounts for the total figure for available jobs and the size of the labor force.
The deficit has led employers to increase wages to remain competitive when hiring new workers. According to Goldman Sachs economists, wages are expected to increase by 5% this year as companies compete to acquire talent.
Economists have also warned that the increase in wages could exacerbate inflation ㅡ an astonishing claim given Americans are already dealing with a 7.5% surge in consumer prices, the highest in almost four decades. Climbing wages and high inflation has advanced concern that a wage-price spiral could be possible. The wage-price spiral, a 1970 phenomenon, is defined by high inflation leading to wage increases, leading to more consumer spending, only exacerbating the costly prices.
Despite this concern, Federal Reserve Chairman Jerome Powell has minimized the potential of a wage-price spiral. Instead, he advised policymakers are closely monitoring signals of an uncontrolled wage increase. Powell’s statements come as the central bank is expected to raise interest rates for the first time in three years, in next month’s meeting designed to combat the price rise.
In December, Powell claimed wages were not “a big part of the inflation story that we’re seeing.” He, however, highlighted that while there wasn’t any evidence of a spiral, if “real wages were persistently above productivity growth, that puts upward pressure on firms and the raise prices.”