New York — Everyone wants to make more money, but what’s worrisome on Wall Street is that there may be too many good things.
Wages for workers in many industries are rising as they exit the recession. And when it comes to inflation, which is now a boogeyman for investors, a sharp and sustained rise in wages is even more dangerous than the price hikes already seen in oil and other commodities.
When wages go up, they tend to stay there, unlike the ups and downs of commodities. For example, after nearly doubling in the first four months or more of the year, timber prices have already more than halved. Few workers are willing to give up all or half of their salary increases.
That’s why the next monthly report on the job market scheduled for Friday could be even bigger than usual for the market. It not only shows how many employers have hired, but also details how wages for workers across the country are rising.
Economists expect the report to show an average hourly wage increase of 0.4% in June from the previous month. If they are correct, it will be the first time that such a record has grown so high for three consecutive months, at least since it began more than 15 years ago.
So far, many investors aren’t too worried. They expect wage growth to eventually slow down and maintain inflation caps. More people will be vaccinated, benefits to the unemployed will no longer be generous, and reopening school in the fall will allow parents to return to work. This means employers will be able to choose from more applicants and ease the pressure to raise wages to fill jobs.
Meanwhile, other sources of inflation, such as used cars and building materials, should see prices fall as supply bottlenecks and other constraints become apparent.
Brian Nick, Chief Investment Strategist at Nuveen, said:
But the threat is still real. According to a review by Morgan Stanley, wage growth to date has been driven primarily by the mid- and high-wage industries such as aerospace products and insurance. But it has spread recently.
For example, restaurants, grocery stores, and gas stations are all under increasing wage pressure.
Chipotle Mexican Grill has just raised restaurant wages to an average of $ 15 per hour. The company raised the price of the menu by about 3.5% to 4% to cover the additional wages.
“We really don’t want to raise prices,” CEO Brian Niccol said at a recent meeting hosted by Baird. “But in this scenario, it makes sense to invest in employees, staff them in these restaurants, and make sure they have a pipeline of people to support their growth.”
CFO Jack Hartung said he expects others in the industry to follow suit. Otherwise, they will lose workers.
There is a fear of Wall Street that wage growth remains high. On the plus side, the higher the wage, the more money the worker can spend, which makes the economy higher. However, in some scenarios, a company cannot raise its price enough to cover higher salaries and maintain profits. Investors are worried because stock prices tend to follow corporate profits in the long run.
Even if a company can pass on higher costs to its customers, it can lead to a more lasting era of high inflation. It will shatter the Federal Reserve’s claim that rising inflation so far is only a temporary problem, as it is the result of shortages and other bottlenecks.
Inflation reached 3.9% in May, according to the Federal Reserve Board’s recommendations. Inflation was at its highest level since 1992, ignoring food and energy costs, which can fluctuate rapidly from month to month.
If inflation ends more stubbornly than expected, the Fed will have to raise interest rates more aggressively than indicated. As a result, one of the main reasons the stock market recently set a new record is lost. It is a firm belief that there is “no alternative” to paying higher stock prices when there is little interest on bonds. It’s a ubiquitous belief that goes with the simple acronym of TINA.
So bless your neighbors with that salary increase, and hopefully you are yours too. Wall Street probably won’t.
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Are you worried about inflation?Check pay slips as well as pump prices | Business
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