Moody’s Analytics chief economist Mark Zandi warned on Friday, shortly after the release of the March employment report, that wage growth is “strong,” but inflation is “stronger,” which is “not desirable” and has a slew of economic repercussions.

Zandi told FOX Business “it is important that we get inflation back down” and that he believes that will happen “on the other side of the pandemic and the fallout from the Russian invasion of Ukraine, but until then it’s obviously very painful for the American worker.”

On Friday morning, the Labor Department revealed that average hourly earnings rose by 5.6% year-over-year in March, up from 5.1% the month before. But surging inflation – which hit a fresh 40-year high in February– has erased those would-be gains for workers.

By that measure, the typical U.S. worker is actually worse off today than they were a year ago, even though nominal wages are rising at the fastest pace in years. That’s because inflation is also soaring.


Zandi noted that “wage growth is strong” and it was “more desirable that inflation comes back in than wage growth accelerate.”

Moody’s Analytics chief economist Mark Zandi warned shortly after the release of the March jobs report that wage growth is “strong,” but inflation is “stronger,” which is “not desirable.” (iStock/Getty Images)

The consumer price index – which measures a bevy of goods ranging from gasoline and health care to groceries and rents – climbed 7.9% on an annual basis, according to data released last month by the Bureau of Labor Statistics. Month over month, inflation rose 0.8%.

From January to February, nearly every category of goods and services got pricier. Gas jumped 6.6% and accounted for almost a third of price hikes. Grocery costs jumped 1.4%, the sharpest one-month increase since 1990, other than during a pandemic-induced price surge two years ago. The cost of fruits and vegetables rose 2.3%, the largest monthly increase since 2010.

For the 12 months ending in February, grocery prices jumped 8.6%, the biggest year-over-year increase since 1981, the government said. Gas prices are up a whopping 38%. And housing costs have risen 4.7%, the largest yearly jump since 1991.


Zandi outlined “three things” must happen in order for the inflation rate to get closer to the Federal Reserve’s target of 2%, including the end of the pandemic, which has scrambled supply chains and the labor market, and is “the principal reason for the high inflation.”

The economist also noted “we have to get to the other side of the Russian invasion of Ukraine,” which has “exacerbated inflation” because of the higher commodity prices, and that the Fed has to “normalize interest rates” and “make them more consistent with where we are in the business cycle with the strong economy and lower employment and higher inflation.”

He argued that if those three things don’t happen “sooner rather than later,” recession risks over the next year are “high.”

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In addition, he pointed out workers are certainly “under pressure,” noting that the typical American household is paying about $300 more a month to buy the same goods and services they were buying this time last year.

A survey released last month revealed that less than 25% of U.S. organizations say they are modifying their salary budgets due to inflation, even though many workers have been asking for raises or other actions to help offset the higher prices they are facing for everything from food to gas.

Mercer, a human resources consulting firm, confirmed to FOX Business that nearly half of the more than 300 U.S. employers surveyed by the company last month do not factor inflation into salary budgets. The survey also revealed that less than a quarter of the organizations surveyed are making changes to their salary budgets because of price hikes, even though 43% of the employers said that workers have been asking them to increase wages to help with rising costs.

The vast majority, 77%, of employers surveyed said dissatisfaction with pay or the ability to get a higher salary at another company were top reasons for turnover, according to the survey. Mercer also found that half of those surveyed said they will conduct additional salary reviews for some or all of their employees in response to surging inflation, an indicator that some employers may be getting worried about losing workers if they don’t make changes.

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“We have seen a lot of companies raise pay,” Zandi noted, adding that data in the March jobs report reflected that point.

He said it’s “not surprising” that employers are trying to manage the situation “without raising wages too much because if they do, that cuts into their margins and earnings and they have to try to pass that in the form of higher inflation.”

“We don’t want to see a wage-price spiral develop because if that happens, the risk of recession will be even greater,” Zandi warned, noting that that would result in the Fed having to “step on the breaks even harder to break that cycle.”