Binyamin Applebaum asks inflation hawk Jeffrey Lacker why inflation hasn’t risen if labor markets are tight, as he believes:
….There’s this confusion about real and nominal that I think infects the discussion, particularly of wages and slack. Real wages have accelerated over the last year because inflation has fallen and the rate of gain in nominal wages hasn’t changed much. The wage pressures we’ve been hearing about, they show up in the macro data as real wage pressures.
And the historical evidence suggests that there’s some lag before things accelerate as you reduce slack significantly. In 1966-67, we had unemployment at 5 percent, we pushed it to 4, and it was 1967 and 1968 when inflation took off. So there was a significant lag in the way that relationship seems to have worked in the past.
That got me curious: have real wages risen over the past couple of years? My preferred measure is production and nonsupervisory wages, and it looks like Lacker is right. Compared to CPI, the general trend is upward. It doesn’t look to me like it’s accelerating, but it does seem to be going up.