If There Is Inflation, the Problem Isn't Wages

Real wages have risen less than 2 percent over the last five years. Because of the sharp drop in gas prices over the last four months, real wages have grown rapidly over this period. Of course, once oil prices stop falling (as they already have) real wages will be growing in the range of 1.0-1.5 percent annually, well below the 2.7 percent rate of productivity growth of the last five years. Since real wage growth is clearly trailing productivity growth, why are reporters so obsessed with the idea that wage growth is causing inflation? If there is cause for concern about inflation in the current economy, it is due to the fact that productivity growth may have slowed back to its pre-1995 rate or that the falling dollar is leading to rising import prices. These are topics that deserve more attention. The media should be discussing these issues instead of obsessing that workers may finally be getting a share of productivity growth.

--Dean Baker