The US December jobs report had a lot of good news. For example, the ranks of the employed swelled by a way-above-expectations 216,000 members to , and the unemployment rate remained at a very low 3.7%. Worries that the US economy is going to start slowing down any day now continue to look unfounded.
Perhaps most encouragingly for anyone with a job, it looks like the Federal Reserve’s efforts to bring down inflation are already making an impact where it counts: Wages are once again rising faster than prices.
Wages vs inflation
In his December press conference following another Fed decision to hold steady on interest rates, Fed chair Jay Powell told reporters that he didn’t quite see wage strength as all rainbows, because he thinks that it’s a factor that will make it harder for inflation to fall back to the Fed’s 2% target.
But when earnings growth is faster than inflation, those are called “real” wage gains because workers feel like their paychecks are going further than before. That bears out in both the consumer price index (CPI), which tracks prices offered to consumers, and the Fed’s preferred gauge, the personal consumption expenditures (PCE) index, which tracks the prices consumers actually pay.
A mood booster
“People are still living with high prices, and that is something that people don’t like,” Powell said last month. “What will happen with that is, real wages are now positive. Wages are now moving up more than inflation, as inflation comes down, so that might help improve the mood of people.”
Whether prices will continue their long trip down remains to be seen—CPI numbers come out next Friday (Jan. 11), and PCE figures will follow a couple of weeks later on Jan. 26. The faster these indexes fall, the more pressure the Fed will feel to start cutting rates again.