IMF Working Papers

The Pass-through of Wages to Consumer Prices in the COVID-19 Pandemic: Evidence from Sectoral Data in the U.S.

By Moya Chin, Li Lin

November 10, 2023

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Moya Chin, and Li Lin. The Pass-through of Wages to Consumer Prices in the COVID-19 Pandemic: Evidence from Sectoral Data in the U.S., (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study the pass-through of labor costs to prices using a novel data-set that links industry-level wages to sectoral consumer prices through input-output tables. Pass-through increased during the COVID-19 pandemic recovery, temporarily in goods and persistently in services. Our analysis suggests that the elevated pass-through contributed at least 0.8 percentage points to goods inflation in 2021 and 0.7 percentage points and 0.5 percentage points to services inflation in 2021 and 2022, respectively. We find that the increase in pass-through reflects elevated demand in goods sectors and firms' difficulty in absorbing high wage growth in services sectors. The analysis suggests it will take a reduction in wage growth to bring PCE inflation back to target. Fiscal and monetary policies that help to re-balance the labor markets can facilitate this process.

Subject: COVID-19, Economic sectors, Health, Import prices, Inflation, Labor, Prices, Services sector, Wages

Keywords: COVID-19, Elevated pass-through, Global, Goods sector, Import prices, Inflation, Inflation dynamics, PCE inflation, Services inflation, Services sector, Wages

Publication Details

  • Pages:

    62

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2023/233

  • Stock No:

    WPIEA2023233

  • ISBN:

    9798400258992

  • ISSN:

    1018-5941

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