The focus now shifts to next week’s CPI inflation report as job growth and wage growth continue to push upward. Stronger-than-expected wage gains have resulted in a 4.1% increase in average hourly earnings over the past year, reversing a trend of cooling. Chief economist Diane Swonk notes that while the Fed doesn’t directly target wages, the increase in wages in the service sector is contributing to rising inflation, particularly in areas such as personal care services, cleaning, home maintenance, and vehicle maintenance. This poses a challenge for the Fed, as offsetting these increases in goods prices is necessary to bring inflation down.
The acceleration in wage gains will be closely monitored to see if they contribute to stubborn inflation, with the upcoming Consumer Price Index for May providing crucial insight into the trajectory of inflation. Early projections suggest that consumer prices may have slowed on a monthly basis, and a key underlying inflation gauge is expected to moderate as well. The report is set to be released on Wednesday, the same day the Fed will announce its latest monetary policy decision. The interplay between wage growth, inflation, and monetary policy decisions will continue to shape the economic landscape in the near future.
