Slowing wage growth in certain parts of the service sector could contribute to reducing inflation in 2024 and 2025, according to a new report from the Cleveland Fed.
Higher wage growth in the leisure and hospitality sector tends to be almost immediately followed by higher inflation in that sector. However, in the education and health services sector, the impact of wage growth on inflation is delayed by about a year, writes Ina Hajdini, a research economist with the Cleveland Fed’s Center for Inflation Research.
"Because of that delay, slowing wage growth in the education and health services sector will likely have disinflationary effects beginning only in late 2024 or early 2025," Hajdini writes. In the meantime, the slowdown in leisure and hospitality wage growth could continue putting downward pressure on inflation.
However, there is not a statistically significant connection between wage growth and inflation in two other main parts of the service sector – financial and business services and trade and transportation services. Thus, it remains unclear whether reduced wage growth in those sectors will lead to lower inflation.
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in formulating national monetary policy, supervising banking organizations, providing payment services to financial institutions and to the US Treasury, and performing activities that support Federal Reserve operations system-wide. The Bank also supports community well-being across its district through research, outreach, and educational activities.
The Cleveland Fed serves an area comprising Ohio, western Pennsylvania, eastern Kentucky, and northern West Virginia through its branches in Cincinnati and Pittsburgh.
For more information:
Dani Carlson
Dani.Carlson@clev.frb.org
216.672.1264
