Wage Inflation Having Limited Impact on Consumer Prices

Apollo Chief Economist

Wage inflation has a weight of 25% in the CPI basket via Services ex-energy ex-shelter. The transmission channel is that higher wages in consumer services such as restaurants and hotels increase the price of eating out and staying at hotels.

The impact of higher wage inflation on the remaining 75% of the CPI index is more complex, see chart below.

With wages having a limited weight in the CPI basket, it is entirely possible to have higher wage inflation for a period while consumer price inflation is coming down as supply chains get better, rent inflation declines, car price inflation declines etc. In other words, the 25% of the CPI basket that is directly impacted by wages may be rising while at the same time, inflation in the remaining 75% of the basket is declining.

The bottom line is that with inflation currently at 7.7% and declining rent inflation, declining car price inflation, declining transportation inflation, declining import price inflation, and elevated inventory levels, we may not need a dramatic amount of demand destruction and a significant increase in the unemployment rate for inflation to come down to the Fed’s 2% inflation target. 

In short, with inflation declining and the labor market remaining solid, the probability of a soft landing is rising.

Higher wages mainly impacting CPI through services ex energy ex shelter
Source: BLS, Haver Analytics, Apollo Chief Economist. Note: Weights as of October 2022. Goods also includes traditional commodities

This presentation may not be distributed, transmitted or otherwise communicated to others in whole or in part without the express consent of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”).  

Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made during this presentation, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of the speaker as of the date indicated. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Apollo does not have any responsibility to update this presentation to account for such changes. There can be no assurance that any trends discussed during this presentation will continue.   

Statements made throughout this presentation are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed during this presentation, including consulting their tax, legal, accounting or other advisors about such information. Apollo does not act for you and is not responsible for providing you with the protections afforded to its clients. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by Apollo. 

Certain statements made throughout this presentation may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.