Wages → Core inflation

Common explanation (Knock-on · same direction): Services rely mostly on labor, so wages push up service prices.

This issue: Wages at 22 (cool), Core inflation at 35 (cool) — both below normal, in line with the common explanation.

Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.

Where it stands now

Where the two indicators stand this issue

Wages: 0.86 percentage points below its 10-year average. Core inflation: 0.56 percentage points below its 10-year average.

Tests

Does this link hold up?

Common explanationServices rely mostly on labor, so wages push up service pricesSource: Federal Reserve Board, “Inflation and the Labor Market” (2022).
Tested against our dataAgreement between the positions of Wages and Core inflation (8-month lag), measured in the direction of the common explanation: +0.46. Looking at every 5-year period (shifted one year at a time), the two moved in that direction in 22 of 37. Weak or inconsistent
Periods when it did not holdAcross 37 5-year periods, out of step in 1991⁠–⁠2005 and 2007⁠–⁠2023.

History

The two lines, overlaid

Data: US Bureau of Labor Statistics (average hourly earnings of production and nonsupervisory employees), via FRED (Federal Reserve Bank of St. Louis); US Bureau of Labor Statistics (core CPI) and Bureau of Economic Analysis (core PCE), via FRED (Federal Reserve Bank of St. Louis). Positions: our calculation.

WagesCore inflation

Limits

What this card cannot tell you

Moving together does not prove that one causes the other.
Links change over time; periods when this one did not hold are listed in full.
This is the historical record, not a forecast.

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