Transcripts

"Commentary" -Worries & Warnings

SUSIE GHARIB: While Fed Chairman Bernanke noted today that wage and price spirals could boost inflation, tonight's commentator thinks that worry is premature. He's Bernard Baumohl, chairman of the Economic Outlook Group.

BERNARD BAUMOHL, DIRECTOR, ECONOMIC OUTLOOK GROUP: Every once in a while we all make statements that seem outlandish to others. But when we hear it from the Federal Reserve, well, then you have to ask, what were they thinking? We know that inflation is public enemy number one at the Fed, as it should be. But then several officials there suddenly began to sprinkle their speeches with warnings that a wage and price spiral may fire up inflation, and that struck me as bizarre. The Fed's argument goes something like this: To offset higher price food and energy prices, workers will demand more pay, and that would force companies, who want to protect their profit margins, to raise prices on consumers. The fear is this could trigger a vicious circle between employees and employers. True, wage and price spirals have caused inflation to flare up in the past. But higher wages will not inexorably result in more inflation, and certainly not in this economy. First of all, let's give American workers a break. While food prices have jumped 5 percent and gasoline 40 percent over the past year, average weekly pay has edged up a miserly 2.8 percent. In fact, wage increases have fallen behind inflation in each of the last nine months, shrinking the purchasing power of workers to their lowest in two years. Ironically, this has happened as labor productivity jumped by its fastest pace since 2004. Rising productivity permits companies to lift wages without hurting earnings. For these reasons I think Fed warnings that higher wages can fuel inflationary pressures are misplaced and premature. I'm Bernard Baumohl.