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Pay Raises Are Historically High. Inflation Is Still Eclipsing Those Gains.


Wage increases are settling at a historically high rate but aren’t keeping up with inflation, which has accelerated this year.

The result is many workers are receiving big raises—and may still be struggling to pay for more expensive gasoline, groceries and rent. Strong wage growth can exacerbate inflationary pressures if employers decide to increase prices to offset raises. However, economists said the latest readings could be a sign that such pressures are starting to ease.

The tight labor market boosted average hourly earnings for private sector workers by 5.5% in April from the previous year, a slightly slower pace than in March, when they rose 5.6%, the Labor Department said Friday. Those gains were well below the 8.5% increase in consumer prices in March from a year earlier, according to a separate Labor Department report.

“The wages are not keeping up,” said

Diane Swonk,

chief economist at Grant Thornton. “It leaves workers chasing a moving target on inflation and it erodes their living standards.”

So far this year, annual wage growth has held in a range of 5.2% to 5.6% a month. That is well above the 3.4% monthly increases recorded in the six months to February 2020, right before the pandemic became widespread in the U.S. Still, broader inflation has accelerated from a 7% annual gain in December while wage growth held mostly steady. April price data will be released next week.

Friday’s report also includes signs that wage gains could be starting to cool as employers are hiring at a robust rate. Wages for all private-sector workers rose 0.3% in April from the previous month, the slowest pace in all but one of the past eight months.

“That may be starting to suggest that the incremental pressure on wages, month to month, might be starting to ease a little bit,” said

Brian Coulton,

chief economist at Fitch Ratings.

Employers have added an average 552,000 jobs a month for the past six months. The labor-force participation rate slipped to 62.2% in April, but is higher than it was in 2021, when it averaged 61.7%. That suggests better wages may be drawing some workers into the labor market in the past year.

Some of the labor market’s hottest sectors are showing signs of cooling pay growth, perhaps signaling broader easing of wage pressures in the coming months.

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Wage gains in the leisure and hospitality industry, which exceeded 13% annually in November and December, eased to 11% year-over-year in April. Transportation and warehousing industries saw wages rise 7.1% on the year to April, down from 7.7% in March.

And in retail, wages year over year were up 4.9% in April, slowing from March’s 6.1%. Retail sector wages on a monthly basis fell 0.4% in April from March.

The fact that wage gains have stabilized while inflation has continued to accelerate should be a comforting sign for the Federal Reserve, economists said.

It suggests that labor costs are not likely to aggravate inflation pressures in the near term, which are being largely driven by supply-chain problems and higher energy and food costs due to the war in Ukraine, Mr. Coulton said.

“If wage growth stabilizes at these levels over the course of the summer, I think [Fed officials] will become more confident in their forecast that wage growth will slow in 2023,” he said.

Fed Chairman

Jerome Powell

has said the central bank’s rate increases are intended to take some pressure off the labor market, which he described in March as “tight to an unhealthy level.”

The Fed raised its benchmark rate by a half-percentage point following its meeting this week and hinted that more such raises could be coming at future meetings.

Write to David Harrison at [email protected]

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