Wages are rising, but can they keep up with inflation?

American workers are taking home bigger paychecks as employers pay up to attract and retain employees. But those same people are shelling out more for furniture, food and many other goods and services these days.

It is not yet clear which side of that equation — higher pay or higher prices — is going to win out, but the answer could matter enormously for the Federal Reserve and the White House.

There are a few ways this moment could evolve. Wage growth could remain strong, driven by a tight labor market, and overall inflation could simmer down as supply chain snarls unravel and a surge in demand for goods eases. That would benefit workers.

But troubling outcomes are also possible, and high on the list of worries is what economists call a “wage-price spiral.” Employees could begin to demand higher pay because they need to keep up with a rising cost of living, and companies may pass those labor costs on to their customers, kicking off a vicious cycle. That could make today’s quick inflation last longer than policymakers expect.

The stakes are high. What happens with wages will matter to families, businesses and central bankers — and the path ahead is far from certain.

“It’s the several-trilliondollar question,” said Nick Bunker, director of research for the hiring site Indeed.

For now, wage growth is rapid — just not fast enough to keep up with prices. One way to measure the dynamic is through the Employment Cost Index, which is reported by the Labor Department every quarter. In the year through September, the index’s measure of wages and salaries jumped 4.2%. But an inflation gauge that tracks consumer prices rose 5.4% over the same period.

A different measure of pay, an index that tracks hourly earnings, did rise faster than inflation in August and September after lagging it for much of the year.

And an update to that gauge Friday showed that wages climbed 0.4% in October, which is roughly in line with recent monthly price increases. Over the past year, that measure is up 4.9%. But the data on hourly earnings have been distorted by the pandemic, because low-wage workers who left the job market early in 2020 are now trickling back in, jerking the average around.

The upshot is that the tug of war between price increases and pay increases has yet to decisively swing in workers’ favor.

Whether wage gains eventually eclipse inflation — and why — will be crucial for economic policymakers. Central bankers celebrate rising wages when they come from productivity increases and strong labor markets, but would worry if wages and inflation seemed to be egging each other upward.

The Federal Reserve is “watching carefully,” for a troubling increase in wages, its chair, Jerome Powell, said Wednesday, though he noted that the central bank did not see such a trend shaping up.

Recruiters do report some early signs that inflation is factoring into pay decisions. Bill Kasko, president of Frontline Source Group, a job placement and staffing firm in Dallas, said that as gas prices in particular rise, employees are demanding either higher pay or work-from-home options to offset their increased commuting costs.

“It becomes a topic of discussion in negotiations for salary,” Kasko said.

But for the most part, today’s wage gains are tied to a different economic trend: red-hot demand for workers. Job openings are high, but many would-be employees remain on the labor market’s sidelines, either because they have chosen to retire early or because child care issues, virus concerns or other considerations have dissuaded them from working.

Those in-demand workers could end up being better off in the long run, should their pay continue to chug higher even as supply chains heal and prices for used cars and couches moderate, allowing them to afford more.

Pay gains might also become more sustainable for employers as virus concerns fade and employees trickle back from the labor market’s sidelines.

And even if rapid wage increases persist, it is not absolutely the case that employers will be forced to drastically raise prices. Businesses could stomach a hit to their profits instead, or they could invest in technology that improves worker productivity.