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How Much Do Labor Costs Drive Inflation? (www.frbsf.org)

submitted 1 year ago by [email protected] to c/[email protected]

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Spoiler: Not very much at all

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[–] [email protected] 2 points 1 year ago (1 children)

A 1pp increase in the ECI increases the contribution of NHS inflation to core PCE inflation by 0.15pp over four years—an effect of 0.04pp per year. As ECI growth has increased by about 3pp from its pre-pandemic level, this means that labor costs have added approximately 0.1pp to current core PCE inflation.

What are the implications here?

[–] [email protected] 2 points 1 year ago (1 children)

Prices (PCE) have gone up a lot. Wages (ECI) have gone up a little. So logically most of the extra money everyone pays for goods and services (inflation) is going somewhere other than wages...

[–] [email protected] 3 points 1 year ago

Coincidentally, profit margins in certain industries have significantly expanded during this same period. It really does look like a lot of "inflation" was more like profiteering, many companies used the panic about inflation to push prices up regardless of actual costs.