Weekly Updates
Weekly Updates
- Even as developed economy inflation has returned to normal ranges, there are still concerns about a potential fourth inflation wave. These fears tend to focus on rising wage costs, which would then feed through into rising prices. However, while wages may be rising slightly more than normal, this can coincide with lower wage costs if fewer workers are doing more.
- Research from the St. Louis Federal Reserve suggests that large companies that complain about labor market tightness are likely to invest more. Sectors that use people to perform relatively repetitive tasks are especially likely to invest in technology. That investment allows fewer workers to produce more output. The threat of higher wage costs leads companies to use capital instead of labor.
- Companies facing higher wage demands may also expect customers to work for them for free. This is most obvious with self-service checkouts in supermarkets or customers ordering food via their phone apps. On many occasions, the customer is also expected to provide most of the necessary capital equipment. Companies expect customers to carry smartphones.
- The combination of employing fewer workers (who earn more money) and exploiting customers working for free allows companies to avoid wage cost pressures, lessening the risk of a fourth inflation wave.
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