With the economy reaching a state of postpandemic stability absent of inordinate volatility within inflation, employment, government spending, and growth, lower levels of long-term demand should allow prices to further decelerate.
The next Consumer Price Index report from the U.S. Bureau of Labor Statistics will likely show continued disinflation within the economy, supplementing the likelihood of a rate cut in September. Consensus estimates project a monthly increase of 0.2% in Headline prints (referring to the published numbers/prices for all the goods and services) and Core prints (referring to the published numbers/prices of all goods and services except commodity prices), that would yield an annual growth rate of 3% and 3.2%, respectively. The Shelter category of the CPI is expected to remain persistent; however, recent data from BLS suggests continued cooling as both rents and vacancies decline. Beyond the Shelter category, supercore services (health care, education, and personal services, for example) will likely drive the remainder of inflation growth owing to elevated labor costs in addition to seasonal factors such as increased travel.
Given increased deterioration within the labor market, this week’s inflation numbers will have little impact on the Fed’s calculus for commencing cuts in September. The committee has noted that it does not expect inflation to return to an optimal cadence of 2% growth; rather, it is seeking evidence of sustained progress toward this goal.
In the long term, inflation will likely continue to decelerate. Since labor costs are more sensitive to interest rates, cuts in September and onward will have a near-immediate impact on supply-side pressures that have bolstered inflation within supercore services. Conversely, the gradual cadence by which shelter costs respond to interest rates implies continued disinflation from reduced starts and anemic demand that will not change in the near term, despite a potentially significant shift in monetary policy by year’s end. And with the economy reaching a genuine state of postpandemic stability absent of inordinate volatility within inflation, employment, government spending, and growth, lower levels of long-term demand should allow prices to further decelerate toward optimal levels.
Several recent surveys reveal that further abatement in wage growth is likely going into 2025—welcome news for staffing companies working on budgets for next year.”
Wage inflation has been a significant challenge for business leaders seeking to balance healthy budgeting amidst increased economic turbulence with the challenges of hiring workers in a low-turnover environment. In the U.S., wage growth exploded in 2022, surging from a pandemic low of 3.0% in May 2021 to a peak of 6.7% in June-August of 2022, according to the Atlanta Fed’s Wage Growth Tracker.
However, growth has since moderated to 4.7% as of March 2024. Several recent surveys reveal that further abatement in wage growth is likely going into 2025—welcome news for staffing companies working on budgets for next year. Recent surveys from Payscale and WorldAtWork offer a forward-facing look at this trend for U.S. businesses developing their compensation strategy in 2024 and 2025.
Payscale’s research shows that actual pay increases have been 3.6% in 2024 so far, down from 4% in 2023. Moderation is expected to continue, as businesses are planning for 3.5% increases in 2025. WorldAtWork found a similar trend: 2024 wage increases have moderated to 3.9% in 2024 from 4.4% in 2023, with further contraction to 3.8% expected in 2025.There are differences by industry. Payscale’s research portends above average increases for workers in government (4.5%) and science and engineering roles (4.2%), while retail, customer service, and education workers are more likely to see increases of 3.1%.
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