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Assessing the Current State of Wage Inflation

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Abstract

Economists often look at nominal wage growth to gauge labor market imbalances, price pressures, and households’ spending ability. But to use wage growth for these purposes, it is important to look through short-run fluctuations and retrieve underlying wage inflation. In this post, we use our own measure of wage growth persistence—called Trend Wage Inflation (TWIn in short)—to summarize what we learned from wage growth behavior in the past years and draw conclusions for what may lie ahead. Since peaking in late 2021, TWIn has been on a steady decline, reaching levels near those of the 2017-19 period. In the past few months, however, this decline seems to have lost momentum. Our analysis shows that most of the decline in TWIn between 2022 and 2025 was common across industries. Recently, however, a few sectors have shown a decoupling of wage growth dynamics.

Suggested Citation

  • Richard Audoly & Martín Almuzara & Davide Melcangi, 2026. "Assessing the Current State of Wage Inflation," Liberty Street Economics 20260526, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:103302
    DOI: 10.59576/lse.20260526
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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