The latest inflation figures for September were unveiled this week. The main takeaway was that consumer prices, which rose 3.7% from a year ago, remain slightly elevated—but underlying cost pressures are also starting to ease.
One of those underlying cost pressures is labor costs (wages). Although hiring was strong last month, wages have only grown at an annualized 2% rate over the past three months.
One contributing factor to this phenomenon is the declining U.S. quits rate, our highlighted chart for this week. As the name implies, the quits rate measures the percentage of employees who voluntarily quit or leave their jobs. Generally, you only see a high quits rate when workers are confident and possess substantial wage-negotiating power. However, as the chart reveals, the quits rate has fallen sharply from its 3% peak during the ‘Great Resignation’ in 2021. And at 2.3% currently, it’s nearly back to its long-run average of 2%.
The normalization of the quits rate is likely a sign that workers have less negotiating power when it comes to their wages and, therefore, are more inclined to stay put in their jobs. Overall, we suspect this will be a powerful force that helps keep wage growth down—and that will contribute to keeping inflationary pressures in check.
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