Inflation is on the rise in America, as evidenced by US job growth

The US saw a steady increase in jobs last month. However, wages rose sharply. This is a sign that the largest economy in the world still has a lot to do in limiting rising prices. Official figures reveal that 263,000 new jobs were created by employers, and the average hourly wage rose 5.1% over last year while unemployment rate stays at 3.7%.The report was stronger than anticipated despite efforts by the US central banks to stabilize the market and cool down the economy through raising interest rates.

This year, the Federal Reserve raised borrowing costs at the highest rate since 1980s. It was responding to inflation (the rate at which prices rise) that is nearing a 40-year peak.
Analysts predict that the slowing of business expansion and the increased costs will lead to a decline in job creation.

However, while some reports have begun to indicate that certain sectors are experiencing job losses, like technology and housing, the Friday report by the US Labor Department indicates that the labor market is still strong.

In November, the majority of hiring was attributable to bars and restaurants as well as health care companies. Even in industries that were expected to suffer, like construction and manufacturing, there was job growth. Analysts believe that this may be good news to workers considering that rising interest rates could cause a sharp increase in unemployment.

They also said that strong wage growth would continue to push up prices. This suggests that the Federal Reserve will increase interest rates over the coming months.

Fed officials will have noticed that the average hourly wage has steadily increased over the last three months. This is in excess of all their expectations and in the exact opposite direction of what they were hoping for,” stated Seema Shah (chief global strategist, Principal Asset Management).

It’s great that the US labor market is so strong. It’s alarming that wages are increasing at an alarming rate.
While wages are rising, they don’t rise as quickly as the prices. Inflation hit 7.7% last month. Although the inflation rate is down from 9.1% in June when it was at its highest, it still remains close to 40 years.
Pantheon Macroeconomics’ Ian Shepherdson stated that while a moderated wage growth remains a possibility, it is only possible because payrolls are expected to slow in the first quarter due to slower gross hiring as well as rising layoffs. The evidence is clear that both are consistent, but the Fed must see the data in hard employment numbers.


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