Saturday, July 29, 2006

Increase of Minimum Wage = Even More Inflationary Pressures

Rumor has it that there are votes in the house for a potential increase of minimum wage from $5.15/hr to the proposed $7.25/hr. I know the intentions can be good, but this will have a major effect on the weakening economy in the form of slowing growth and fanning the flames of inflation even further. Legislation like this are what can be the straw that breaks the camel's back. I think the timing for this is very troublesome. Plus states like California already have increased their minimum wages and plans to further increase it.

High wage inflation can have devastating results when mixed into the economy as a whole. Especially during this time when we see inflation rising in almost every indicator: headline, core, CPI, PCE, unit labor cost, wage costs, ECI, etc. I hate to be so negative, but we are entering a time of Stagflation (stagnant growth - high inflation) and possible recession. Expect a bumpy ride for at least the next year, the question of how long and bumpy remains to be seen.

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