International Herald Tribune Editorial - Of prices and paychecks

International Herald Tribune Editorial - Of prices and paychecks
Copyright by The International Herald Tribune
Published: December 13, 2006


As chairman of the Federal Reserve, Ben Bernanke is America's top inflation cop. When he expresses alarm — as he has done of late over rising labor costs — his concern drives policy, as it apparently did Tuesday when the Fed's interest rate committee decided to hold rates steady in a bid to dampen inflationary pressures.

But of all the reasons Bernanke might have for fretting about inflation, rising wages should not be one of them. For starters, wage growth is slowing, not rising. Working Americans have more to spend lately, but it's because prices have eased, mainly for energy.

So where does Bernanke's fear about inflationary wage pressures come from? Maybe he is worried that pay raises in relatively strong job fields — like engineering, law and health care — will soon be passed on to consumers. Betting that companies will compel consumers to foot the bill for higher salaries could prove to be a safe wager.

Another good bet at this point is, sadly, that the U.S. economy will continue to downshift in 2007, removing any upward wage pressures that may exist. An economy that has not been good for jobs and wages during its strong growth phase is not likely to become so as it weakens.