The charts all inflation watchers need to see

“Getting the inflation call right is one of the most important decisions an investor can make today. Inflation expectations are quite soft, and it’s important to consider such market-based inflation measures in any inflation outlook. The two charts below may be of help as well.

We have seen an incredibly robust period of hiring in the United States, and even if payroll growth is likely to slow somewhat going forward, job gains have greatly outpaced total labor force growth over the past several years. As a result, there are numerous signs that firming wages are on the way, if not here already. Average hourly earnings rose last month at a year-over-year growth rate of 2.6%. Other recent wage growth indicators have also increased solidly, meaning an extended period of fairly anemic wage growth may have come to an end amid increasing labor market tightness. One implication of stronger wage growth: a changing U.S. inflation picture. The chart below shows how stronger wage growth has supported core inflation lately.

 

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