2023 recession could be avoided if wage growth slows

Strong wage growth is generally a good thing for workers and a boon for the economy.

Now? Not much.

Average wage increases are nearing their highest levels in decades, fueling inflation, the Federal Reserve says. And that could force Fed officials to raise interest rates more next year, risking pushing the U.S. into a mild recession.

Economists say that moderating wage growth is shaping up as the key to avoiding recession.

But maybe it’s not that simple.

What is the average salary increase in 2022?

Average annual wage gains fell to 5.2% in the third quarter from 5.7% earlier this year, according to the Labor Department’s Employment Cost Index. But that’s higher than the average of 3.3% before the pandemic and about 2% in the decade before the health crisis.

Inflation Outpaces Wage Growth Wages haven't risen as fast as prices for tens of millions of Americans, which means prolonged belt-tightening is necessary if possible.  The national inflation for all goods and services increased by 9%.  The average wage increased by a figure close to 5%.  ALSO READ: Record Inflation Driving Up Prices for These 40 Household Items

Steady salary increases are usually a good thing. Since the COVID crisis, however, they haven’t nearly kept up with inflation, meaning consumers have lost purchasing power.

But rising wages contribute to inflation because employers with high labor costs often raise prices to maintain profits.

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On the other hand, the Federal Reserve raised interest rates sharply to lower annual inflation that hit 9.1% in June before dropping to a still high 7.1% in December.

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