The Inflationary Spiral

By Charlie Bilello

11 Nov 2021


What do Amazon, Walmart, Costco, Bank of America, McDonald’s, and Starbucks have in common?

They’re all among the largest US employers and they’ve all raised wages in the last year.

Overall, average hourly earnings in the U.S. are up 4.9% in the last 12 months and 9.6% over the last 24 months. This is significantly higher than the average 12/24 month increases since 2006 of 2.8%/5.4%.

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What’s pushing wages higher?

Supply and demand.

The number of job openings in the US currently exceeds the number of unemployed persons by 3 million, a record high.

Help wanted signs are everywhere you look, and employers have had to increase wages to incentivize workers to reenter the labor force.

An additional factor impacting supply is the percentage of workers who are quitting their jobs, which is at an all-time high (2.9%). After three rounds of stimulus checks, employees have additional savings and the ability to leave a job they don’t like in search one that they do. This is putting additional pressure on companies to increase pay and benefits in an attempt to retain employees.

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As wages are the biggest expense for most companies, a choice then has to be made. Either the company accepts lower profits or it raises prices of their goods/services, passing on the cost to the end consumer.

Thus far, companies have opted for the latter, a concept known as “wage push inflation.” Consumer prices have increased 6.2% over the last year, the highest rate of inflation in over 30 years.

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While this rate of increase is expected to come down at some point in 2022, the pay increases we have seen will not. Amazon and Walmart are not going to pay their employees less next next year. In the near term, the opposite is more likely to happen, as an inflationary spiral has taken hold: higher prices necessitate higher wages which in turn necessitate higher prices, and so on.

Thus far, both the Federal Reserve (“0% rates are still warranted”) and the Federal Government (“trillions more in borrowing/spending is warranted”) have not only been dismissive of this spiral but have continued to take actions that encourage it.

But with each passing month, these profligate policies are becoming harder to defend, with more and more people starting to talk about the harmful effects of higher inflation.

Wage gains are generally great to see and long overdue in the US, but they can’t be viewed in a vacuum. When the cost of living outpaces those pay increases as it is today, that’s a reduction in our standard of living and not something to be celebrated.

At the extreme, it can be an indication of hyperinflation and an economic crisis. Just ask any Argentinean whether the 55% increase in their minimum monthly wage in the last year was a sign of prosperity.

Appendix Wage and Benefit Increases at Large Corporations since March 2020…

MonthCompanyWage/Benefit Increase
November 2021Macy’sMinimum wage to $15/hour, Education Program to cover 100% of tuition/books/fees.
October 2021CostcoMinimum wage to $17/hour.
October 2021StarbucksMinimum wage to $15/hour, 5-10% increase for workers with company for 2-5 years.
October 2021Bank of AmericaMinimum wage to $21/hour.
September 2021AmazonStarting pay to $18/hour, operations employees eligible for fully funded college tuition (classes/books/fees)
September 2021 WalmartMinimum wage to $12/hour.
August 2021WalgreensHourly wages to increase in phases to $15/hour by November 2022.
August 2021CVSMinimum wage to $15/hour by July 2022.
August 2021Schwab5% special pay raise to most employees, effective September 2021.
July 2021Walmart100% of college tuition and books for associates.
May 2021 McDonald’s Average wage increase by 10% over next several months, expects $15/hour average wage by 2024.
May 2021ChipotleAverage wage to $15/hour by June, employee referral bonuses.
May 2021Bank of AmericaMinimum wage to $25 by 2025, requires vendors to pay their workers $15/hour or more.
May 2021Under ArmourMinimum wage to $15/hour, starting in June.
April 2021AmazonHourly wages increases between 50 cents and $3 per hour for more than 500k workers.
March 2021KrogerHourly wages to $16/hour after raising to $15.50 in 2020.
February 2021CostcoMinimum wage increase to $16/hour (from $15).
November 2020StarbucksPay increases of at least 10% for all baristas, shift supervisors, and café attendants.
August 2020Best BuyStarting wage to $15/hour.
July 2020TargetMinimum wage to $15/hour (from $13) and giving bonus of $200 to all hourly employees.
March 2020Wells FargoMinimum wage to $20 (from $15) by end of 2020.

Related Posts:

Why 0% Rates Make 0 Sense

Everything is Transitory

The Definition of Inflation

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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For our full disclosures, click here.

About the author

Charlie Bilello

Charlie is the founder and CEO of Compound Capital Advisors.

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