Economic Quarterly

2000

 

Summer 2000

Wage-Price Dynamics: Are They Consistent with Cost Push?

Yash P. Mehra

The “cost-push” view of the inflation process implies that higher wage growth leads to higher future inflation, notwithstanding the nature of Federal Reserve policy and the inflation regime. I test this implication using wage-price data over the sample period 1952Q1–1999Q2, during which both inflation and Fed policy vary considerably. Although wage growth does help predict inflation over the full sample period, this result is due to the high inflation subperiod 1966–1983. Wage growth does not help predict inflation during low inflation subperiods 1952–1965 and 1984–1999, suggesting wage growth has not been an independent source of inflation in the United States.



Topics: Inflation
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