20 May 2021
Inflation: Wage Growth
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
Inflation is definitely spiking upwards, examples include material prices for building and construction which have already risen due to lack of supply.
This prospect of an inflation genie jumping out of the bottle is causing tremors in financial markets which are currently down since their April 2021 highs.
But how high can inflation actually rise given that its largest input is salary and wage growth which has not moved upwards for the past two decades.
Click for chart.
We can see a pattern, yes the number of people returning to employment has increased but something keeps impacting to subvert the rate of increase in the total number of people in the workforce and in turn continues to suppress wage growth.
Our best guess is that it is technology which through artificial intelligence (AI) advances continues to work quietly towards reducing the total number of people needed to do a job.
Will AI continue to impact and suppress wage growth and in turn keep a lid on inflation?
Don’t know but it is more likely than not.
Remember never to panic and as Benjamin Graham taught, to remain invested according to your appetite for volatility. If the inflation genie does jump out of the bottle, causing fear and panic to take hold, then you will be presented with an opportunity to react and buy more quality assets at discounted prices.
At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.