Inflation and Wages Rise, Spending Drops

What Friday’s Economic Reports Tell Us

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The Federal Reserve’s preferred measure of inflation showed another acceleration in December and wages rose 4.5% last year, the most since 2006, reports showed Friday. 

Here’s a quick look at the most significant economic indicators of the day and what they tell us.

Inflation, Spending, and Personal Income

  • One of the two most widely used measures of inflation (the Federal Reserve’s preferred measure) showed inflation continued to accelerate in December. 
  • Prices rose 5.8% in the year through December, according to the Personal Consumption Expenditures survey from the Bureau of Economic Analysis, a new high since 1982. In November, that rate was 5.7%. So-called core inflation (which excludes food and energy prices because they tend to be more volatile) accelerated to 4.9% from 4.7%.
  • Core inflation was slightly greater than the 4.8% economists had expected, and will encourage the Fed to stick to its plan of raising borrowing costs to clamp down on inflation, economists said. 
  • Spending fell 0.6%—more than forecast—as consumers pulled back on buying goods, a dip that some economists attributed to people having done their holiday shopping early.
  • A sharp increase in wages counteracted declines in business owners’ income—likely caused by the surge in COVID-19 cases from the omicron variant in December—to make income rise 0.3%, slightly less than economists had forecast. 

Wages and Salaries

  • Wages and salaries were 4.5% higher in December than a year earlier, the highest increase since the Bureau of Labor Statistics began keeping track in 2006. Rising wages helped drive a 1% increase in total compensation (including benefits) over the quarter, according to the Employer Cost Index, somewhat less than the 1.2% economists had predicted. 
  • The steep increase in wages comes as no surprise. Employers have been scrambling to fill near-record numbers of job openings since the pandemic-era recovery in the job market tilted in favor of workers.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Bureau of Economic Analysis. “Personal Income and Outlays, December 2021.”

  2. Bureau of Labor Statistics. “Wages and Salaries and Benefits for Civilian Workers, 12-Month Percent Change.”

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