Inflation is being boosted by rising wages and import prices, New York Fed research finds

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(Bloomberg) — U.S. consumer inflation, which is near the fastest pace in 40 years, has been increasingly hurt by rising inflation, according to new research from the Federal Reserve Bank of New York. wages and import prices.

“We find that the pass-through from wages and input prices to the U.S. producer price index has increased during the pandemic,” authors Mary Amiti, Sebastian Heise, Fatih Karahan and Aysegul Sahin said in a post on Tuesday. the bank’s website. “The large changes in these costs and a higher pass-through to domestic prices have contributed to higher inflation.”

The Fed is rapidly raising interest rates to counter price pressures, with increases of 75 basis points in each of its last two policy meetings and the same potentially on the table when officials meet next month. .

Consumer prices rose 8.5% on the year to July, which was slightly cooler than expected, but still well above what the Fed wants. He is targeting inflation of 2%, measured by a different indicator called the personal consumption expenditure price index, which climbed 6.8% in the 12 months to June.

The study found that the pick-up in goods inflation in the current economic expansion is the strongest since the 1970s, with services prices also accelerating recently. He also highlighted rising wages, particularly in service industries, which he linked to the tight labor market where unemployment fell to 3.5% last month, matching a five-decade low. .

“Our results indicate that imported input prices and wages have had a significant effect on U.S. domestic prices in recent months,” the authors wrote. “This large effect stems from both their relatively larger increases and a higher rate of transmission.”

They also found that prices in the merchant sector have become more correlated with the prices of foreign competitors, “most likely because all firms experience the same shocks.”

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