The Pass-through of Wages to Consumer Prices in the COVID-19 Pandemic: Evidence from Sectoral Data in the U.S.

The Pass-through of Wages to Consumer Prices in the COVID-19 Pandemic: Evidence from Sectoral Data in the U.S.
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Volume/Issue: Volume 2023 Issue 233
Publication date: November 2023
ISBN: 9798400258992
$20.00
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Topics covered in this book

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Labor , Inflation , Economics- Macroeconomics , Economics / General , Service , inflation dynamics , PCE inflation , elevated pass-through , services inflation , goods sector , Wages , COVID-19 , Inflation , Services sector , Import prices , Global

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August 2009 Working Papers
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Summary

We study the pass-through of labor costs to prices using a novel data-set that links industry-level wages to sectoral consumer prices through input-output tables. Pass-through increased during the COVID-19 pandemic recovery, temporarily in goods and persistently in services. Our analysis suggests that the elevated pass-through contributed at least 0.8 percentage points to goods inflation in 2021 and 0.7 percentage points and 0.5 percentage points to services inflation in 2021 and 2022, respectively. We find that the increase in pass-through reflects elevated demand in goods sectors and firms' difficulty in absorbing high wage growth in services sectors. The analysis suggests it will take a reduction in wage growth to bring PCE inflation back to target. Fiscal and monetary policies that help to re-balance the labor markets can facilitate this process.

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