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Discussion Paper
Inflation and the Price Expectations of Firms
n the spring of 2021, inflation started to climb above the Federal Open Market Committee's (FOMC) 2 percent target. By June 2022, the inflation rate had increased to territory not seen since the early 1980s – year-over-year growth in the Consumer Price Index (CPI) reached 9.1 percent, while growth in the Personal Consumption Expenditures Price Index (PCEPI), which is followed most closely by the FOMC, hit 7.0 percent. The most recent inflation readings are still extremely elevated—7.7 percent for the CPI (October 2022) and 6.2 percent for the PCEPI (September 2022).
Report
An Approach to Predicting Regional Labor Market Effects of Economic Shocks: The COVID-19 Pandemic in New England
The emergence of the COVID-19 pandemic led state and local governments throughout New England and much of the nation to issue ordinances restricting activity that might otherwise contribute to the spread of the disease. Individuals also freely adjusted their behavior, hoping to reduce the chances of infecting themselves or others. As a result, many employers have experienced substantial reductions in sales revenue, which were expected to generate harmful effects on the labor market. Even though the reversal of mandated policies and voluntary behavior changes are well under way, the initial ...
Newsletter
What Does Everything Besides the Unemployment Rate Tell Us About Labor Market Tightness?
Between March 2022 and June 2023, the unemployment rate, the most commonly used gauge of labor market tightness, remained in a narrow range between 3.4% and 3.7%. Yet, over this period, nominal wage growth increased to unusually high levels and then moderated, though it remains at a historically high rate. The disparity between a relatively constant unemployment rate and large movements in nominal wage growth has led to a divide in public discourse, with some seeing low unemployment and strong wage growth as a sufficient sign of the strength of the labor market and others concerned that the ...
Briefing
How Much Do Labor Costs Affect Prices in Recessions and in Expansions?
Inflation had been quite low in the decade following the Great Recession but surged following the COVID-19 recession. Can labor costs explain this change in the dynamics of inflation? According to recent research, the relatively stable inflation in the last decade indicates a weaker pass-through of labor costs to wages, especially in the goods sector of the economy. The current inflationary episode, however, suggests that the wage-price pass-through may have regained its strength.
Journal Article
How Much Do Labor Costs Drive Inflation?
Tight labor markets have raised concerns about the role of labor costs in persistently high inflation readings. Policymakers are paying particular attention to nonhousing services inflation, which is considered most closely linked to wages. Analysis shows that higher labor costs are passed along to customers in the form of higher nonhousing services prices, however the effect on overall inflation is very small. Labor-cost growth has no meaningful effect on goods or housing services inflation. Overall, labor-cost growth is responsible for only about 0.1 percentage point of recent core PCE ...