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**JUNE 23, 2021**

Kuttner on TAP

Time for Some Good Inflation

****

The inflation scare has subsided. The price hikes in sectors such as raw
materials that pushed up the Consumer Price Index in recent months
proved transitory.

The Federal Reserve has made noises about very modest interest rate
increases next year, but not enough to douse the economic recovery.
That's all good news.

But there is one kind of good inflation that we should be cheering
on-inflation of low wages.

The dirty little secret of the recent era of very low inflation is that
the prime source of well-behaved prices has been shabby wages. The
combination of outsourced manufacturing, gig work, weakened unions, and
a low-wage service sector has led wages to lag productivity growth. All
the economy's gains have gone to the top.

In the aftermath of COVID, labor shortages have begun to appear. Some
"essential" workers have concluded that risking their lives for $7.25 an
hour just isn't worth it. The Amazons of the world have had to raise
wages a tad in order to find workers to operate the economy's new
sweatshops-giant warehouses.

Labor shortages bid up what economists call the reservation wage-the
lowest wage that will fetch willing workers. A decent de facto minimum
wage should be at least $20 an hour.

Some of the increased labor cost can and should come out of profits. God
knows the Amazons can afford it. Consumer resistance to higher prices
can limit price inflation. The revival of antitrust enforcement and more
old-fashioned price competition can also help.

Yet the inflation rate has been running below the Fed's own target.
And if higher wages produce a modest uptick in inflation, bring it on.

~ ROBERT KUTTNER

Follow Robert Kuttner on Twitter

Robert Kuttner's latest book is
The Stakes: 2020 and the Survival of American Democracy
.

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