Key Takeaways:
An aggressive surge in gasoline prices pushed U.S. inflation to a two-year high in March, erasing wage gains for American workers and delivering the steepest drop in real weekly earnings since June 2022. When factoring in the price surge, average weekly earnings slumped 0.9 percent from the prior month.
"Changing jobs for more pay isn’t as easy in today’s slow-hire job market. Many companies are looking for places to cut costs, including labor, and workers are increasingly at risk of being laid off," Diane C. Swonk, chief economist at KPMG US, said.
The March data revealed a sharp erosion of purchasing power. Compared with a year earlier, real weekly earnings were up just 0.2%, a significant deceleration from the 1.6% yearly gain seen in February. The primary driver was a spike in fuel costs, which have climbed above $4 a gallon following the outbreak of the Iran war. The impact has been particularly acute for rank-and-file workers, whose inflation-adjusted hourly earnings rose only 0.1% from a year earlier, reversing a trend where their gains had been outpacing the broader workforce.
This stagflationary data presents a significant challenge for the U.S. economy, reducing consumer purchasing power and potentially impacting corporate earnings in the retail and consumer discretionary sectors. With the number of hours worked per week already below pre-pandemic levels and companies tightening their belts, the decline in real wages suggests a period of mounting pressure on American households and could force the Federal Reserve to maintain a hawkish monetary policy stance.
This article is for informational purposes only and does not constitute investment advice.
