The Bloomberg chart above compares year-to-year percentage changes in labor costs and consumer prices — from 1950 to present, for the past six decades (data source: Labor Department).
These indicators had a high correlation — 0.82 during the period — according to Brian Belski, chief investment strategist for Oppenheimer & Co. Labor costs have fallen for the past eight quarters, and are essentially flat over the past decade. Declining wages means consumers have less cash to fuel spending. Companies will have a limited ability to raise prices, and will likely see their margins pressured, Belski has argued.
Hence, even rising bond yields are unlikely to reflect a worsening inflation outlook. Since October 7th 2010, the yield on the Treasury’s 10-year note climbed 1.25 percentage points from its low.
‘Several Years’ of Tame U.S. Inflation Lie Ahead: Chart of Day
Bloomberg, February 14, 2011