The U.S. economy started 2022 by sending a disturbing signal from the past: Consumer prices and household paychecks soared in lockstep, conjuring memories of a 1970s-style wage-price spiral.
Back then, the spiral dragged on for years, until the Federal Reserve stamped it out with high interest rates that drove down inflation and pushed the economy into recession.
Is the U.S. on course for a repeat performance? Not necessarily. Wage-price spirals aren’t inevitable. They can be averted even after they appear to gather momentum, and a lot still has to go wrong to keep the dance going this time. But the risk is higher than it’s been in years.
A wage-price spiral occurs when consumer prices rise and wages follow because workers press their employers for pay raises to keep up. Employers respond by raising consumer prices even more to match their rising costs. Wages and…
