"Wage and Price Increases Amid US Labor Shortage... Importance of Fed's Monetary Policy Response"

United States Federal Reserve System

[Asia Economy Reporter Dongwoo Lee] As wage and price increases become more pronounced due to the deepening labor shortage in the United States, the monetary policy response of the U.S. central bank, the Federal Reserve (Fed), is becoming increasingly important, according to an analysis.

On the 9th, Dongsoo Shin and Jooyeon Cho, managers of the U.S. and European Economy Team at the International Economics Department of the Research Bureau of the Bank of Korea, along with researcher Yeonhee Joo, stated in their report "Recent Characteristics and Evaluation of the U.S. Labor Market," published in the weekly publication "Overseas Economic Focus," that "the correlation between wages and prices in the U.S. has strengthened."

The report noted that the correlation coefficient between the common factors of the U.S. inflation and wage growth rates was 0.70 from January to October last year, higher than the 0.48 recorded from July 2008 to February 2020.

It explained that the "common factors," which represent overall conditions related to wages, had a greater impact on the rising trend of wages and prices than the "specific factors," which reflect conditions limited to particular sectors within industries.

The report stated, "This suggests that the recent wage increases are more likely to lead to price increases than in the past," adding, "Unlike last year, when attention was focused on rising energy prices, this year the focus may shift to increases in service charges, which have a high labor cost component."

This is attributed to the accelerated labor shortage in the U.S., where employment has recovered faster than in the past following the COVID-19 pandemic. The number of voluntary resignations in the U.S. has continued to rise, reaching a record high of 4.527 million in November last year, indicating that the growing labor demand is not being met.

The report concluded, "whether wages and prices will continue to rise in the U.S. will likely depend on the Fed's monetary policy response, the degree of anchoring of inflation expectations, and the speed of improvement in supply chain and labor supply-demand imbalances due to the pandemic situation.

This content was produced with the assistance of AI translation services.