The strong employment report and the surge in the ISM Services Prices Paid index to levels not seen since the 2021–22 inflation surge point to a mechanism I have long described: the money price of labor is regulated by the demand for labor and by the price of necessaries and conveniences. When demand for labor is increasing, employers bid against one another to secure workers, which raises wages; and if provisions are also dear, the money price of labor must rise still further. The article's observation that strong jobs data may keep "higher for longer" concerns in play reflects this connection between a thriving labor market and sustained price pressures.
I would also note that when the demand for labor is continually increasing, the reward of labor tends to encourage the multiplication of laborers, so as to supply that demand. But if the reward is more than necessary, excessive multiplication will lower it; if less, a deficiency of hands will raise it. Thus the labor market, like any other, tends to regulate itself over time. The current data suggest that the demand for labor remains strong, which, in my analysis, is consistent with the upward pressure on prices that the article attributes to the services sector.
Finally, the article's implication that the Federal Reserve might raise rates to prevent a resurgence of inflation reminds me of my observation on the price of interest: where interest is permitted, the legal rate ought to be somewhat above the lowest market price, so as not to drive borrowers to exorbitant usurers. A central bank adjusting its policy rate in response to inflationary pressures is analogous to setting that rate appropriately, though the article does not provide details on the exact policy mechanism. I would caution that the data alone do not tell us whether such a move is warranted; we must consider the underlying structure of demand and supply in the labor and goods markets.
