Labor Costs vs Consumer Prices 1950-2010

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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.

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Source:
‘Several Years’ of Tame U.S. Inflation Lie Ahead: Chart of Day
David Wilson
Bloomberg, February 14, 2011

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