Main street has been watching prices rise for a while. now wall street has taken notice. – the washington post nyc electricity cost


The chief executive of Delta Apparel, a Greenville, S.C., clothing maker, sees higher costs at every link in a multinational supply chain: Raw materials, such as cotton; energy to run his factories; transportation to move his goods to market — all are getting pricier. With higher wages looming, he’s passing on some of those extra costs by raising prices on Delta Apparel’s plain and decorated T-shirts and fleeces.

That’s exactly what spooked Wall Street this week, triggering a brief stock market rout that shaved roughly 9 percent off the Dow Jones industrial average’s record high. A pair of recent government reports showing that American workers were finally enjoying sustained pay raises convinced many on Wall Street that the economy — for the first time in a long time — was in danger of overheating.

Higher wages are good news for millions of American workers who have endured years of meager salary increases. But investors see fatter paychecks as the start of something ominous: rising prices that may cause the Federal Reserve to end a decade of easy money policies even more quickly than planned and threaten stock values.

For the past two years, the Fed has been raising rates in tiny increments. Last fall, it began reversing its asset-buying program, which had injected all that extra cash into the markets. Before the recent wage news, investors expected the nation’s central bank to raise rates three times this year on top of a trio of increases in 2017.

Higher inflation would cause the Fed to raise rates more quickly. It also would eat into the fixed returns that bonds offer, prompting investors to demand higher yields to hold them. As the returns on bonds grew more attractive, some investors would quit the stock market, causing share prices to sag, Strain said.

After being stuck below its 2 percent target for nearly a decade, the Fed’s preferred inflation gauge has ticked higher for four consecutive months. Some products have become noticeably more expensive over the past year: Fuel oil is up 15 percent, eggs are up almost 12 percent, and hospital services are up 5.1 percent.

Home builder PulteGroup is seeing higher prices for land, lumber and concrete. Weyerhauser is trying to escape rising rail freight costs by moving wood shipments to trucks. At Clorox, profit margins are being squeezed by rising commodity and logistics costs, prompting the consumer-goods-maker to raise prices on items such as disinfecting wipes.

Still, in a nearly $20 trillion economy, individual anecdotes can be misleading. For every product that is getting more expensive, there is another, such as clocks or audio equipment, whose prices are running in reverse. Across the economy, overall inflation remains subdued, up just 1.5 percent over the past year.

The Fed has spent much of the past year puzzling over the absence of rising wages and inflation. In early 2017, prices rose at nearly a 2 percent annual clip, cheering central bank mandarins who see that level as a sign of a healthy economy.

Fed experts identified several possible explanations, including one-time price declines for services such as wireless phone contracts, the rise of online shopping and the failure of traditional unemployment measures to accurately capture labor market slack.

Whether that will translate into higher inflation depends on the reason for those pay gains, he said. If workers are rewarded for being more productive — perhaps aided by new equipment or smarter management techniques — then fatter paychecks won’t be inflationary.

For one thing, it’s not yet clear that the recent wage growth will last. Paul Ashworth, an economist with Capital Economics, said the uptick that spooked markets this week may simply have been a statistical distortion caused by unseasonably cold January weather.