A “wage growth spiral” is nonsense— wage inflation makes up less than 5% of the CPI

Wage growth is the other principal villain widely accepted as a solid assumption. Between June 2021 and July 2022, workers discovered they could demand and get higher wages. The reasons included the flood of government stimulus money that encouraged many workers to stay home rather than return to work. There was also the phenomenon of the Great Resignation, aka the Big Quit. There were more jobs than people who wanted them, so employers had to pony up.

When inflation began to tick up, economists fretted that surging labor costs would force companies to raise prices which, in turn, would encourage workers to demand more to keep pace, and so on — a wage growth spiral.

Like so many statistics and data points that become accepted wisdom by repetition, a new analysis by Federal Reserve economist Adam Shapiro finds that wage inflation was not the boogie man at all. He discovered that it represented less than 5% of the rise in the Consumer Price Index. No less an authority than former Fed Chairman Ben Bernanke agrees in : “Tight labor markets alone made only a modest contribution to inflation early on.”

It’s worth noting that in the years leading up to the onset of the pandemic, the retail industry was muddling along, operating mostly on razor-thin margins. The pandemic helped flush out those companies that were weak or with bad strategies to begin with, like Bed Bath & Beyond, and inflation helped the survivors navigate a treacherous economy until things returned to normal.

To me, that sounds more like capitalism than greed.