Inflation Is Outpacing Wages, Economist Warns

Mark Zandi delivers a speech
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News & Politics
Damir Mujezinovic

The Labor Department reported on Friday that average hourly earnings in the country rose by 5.6 percent in March, up from 5.1 percent in February.

But at the same time, inflation is at a near-record high. In fact, the inflation rate is the highest it has been in four decades, and prices of various goods and services are surging.

In other words, even though the American worker is better on paper, they are actually worse off today than they were a year ago.

Here's what Moody's Analytics chief economist Mark Zandi has to say about these issues.

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Speaking on Fox Business, Zandi pointed out that wage growth is "strong" but inflation is "stronger," stressing that this is "not desirable" and could have dire economic consequences.

Zandi said "it is important that we get inflation back down," noting that he believes that will happen "on the other side of the pandemic and the fallout from the Russian invasion of Ukraine, but until then it’s obviously very painful for the American worker."

It is therefore "more desirable that inflation comes back in than wage growth accelerate," he added.

Recession Risk

Economist Mark Zandi delivers remarks
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Zandi said the coronavirus pandemic -- which has caused supply chain issues -- is "the principal reason for the high inflation," though not its only cause.

The Russian invasion of Ukraine has "exacerbated" the problem, he said, so the Federal Reserve must do all it can to "normalize interest rates" and "make them more consistent with where we are in the business cycle with the strong economy and lower employment and higher inflation."

If these issues are not a addressed soon, recession risks over the next year are "high," Zandi warned.

Worker Satisfaction

According to Zandi, workers across the country are "under pressure" because the typical American household is paying approximately $300 more per month to buy the same goods were buying this time last year.

In a recent survey from the human resources consulting firm Mercer, 43 percent of employers said workers have been asking them to increase wages.

However, around a half of surveyed employers said they don't factor in inflation when it comes to wages.

Inflation A Major Concern, Polls Show

Dollar bill inflation stock photo
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Recent research shows that most Americans are concerned about inflation.

In the latest Gallup poll, when asked how much they worry about inflation, 59 percent said they worry about it "a great deal."

Crime, violence, hunger, homelessness, healthcare, race relations, immigration, drug use, terrorism all ranked lower on Gallup's list of Americans' concerns.