Richest economies enjoy big pay raise

Workers in the world’s richest countries are getting their biggest pay bump in a decade, a step toward solving a labor market puzzle that’s unnerving central bankers.

As shrinking unemployment in the U.S., Japan and the eurozone finally forces companies to lift wages to retain and attract staff, JPMorgan Chase reckons pay growth in advanced economies hit 2.5 percent in the second quarter, the most since the eve of 2009’s worldwide recession. The bank predicts wages will accelerate to near 3 percent next year.

Fatter wallets should support global economic growth already enjoying its best upswing since 2011, while encouraging central banks such as the Federal Reserve to keep tightening monetary policy before inflation takes hold. It may prove less welcome news for stock and bond prices.

“It’s a good thing: you’re more confident in the sustainability of your expansion, you’re more confident that you’re going to get inflation moving up,” said Bruce Kasman, chief economist at JPMorgan in New York. “It is a signal that we’re normalizing economic cycles.”

The key question is how sustainable the recent gains will be. Even if pay growth does continue, any accompanying rise in inflation will eat into the ability of consumers to spend by pressuring so-called real wages. JPMorgan estimates inflation in developed markets will rise to 1.9 percent by the end of next year from 1.6 percent in July and is “on guard for a more rapid escalation” because of wages.

One reason to expect pay to stay weak is that companies are increasingly offering more flexible working arrangements, longer vacations and better benefits instead of higher wages.