In the past 12 months, inflation has risen 3.5 percent matching most or all of this year's wage growth. For about 25 years prior to the 1990s, real wages were either stagnant or had actually decreased. Since 1996, wage gains have been between 3 to 5 percent per year depending upon the measure used. Unlike previous periods, practically all segments of the labor force shared in these wage gains. Hourly earnings data and the Employment Cost Index still show wage gains in the same range but these gains are matched by increased inflation.
Oil prices are primarily responsible for the higher inflation.
OPEC has promised to increase production, which should lower gasoline prices, heating oil and inflation. If inflation continues to match wage gains, many fear that workers will agitate for higher raises in order to keep ahead of inflation. The push for higher wages has not as yet occurred, they argue, because workers still believe that the long run inflation rate is still less than 3 percent. Wage rates in excess of productivity gains can lead to price hikes and an inflationary spiral. Other economists argue that this inflation scenario will not occur because workers are more passive than in the past.