What is Wage Growth?
Quick Answer: Wage growth tracks how quickly workers’ pay is rising. It feeds into inflation expectations and central bank policy, influencing currency valuations.
Understanding Wage Growth
Wage growth measures how quickly workers' pay is rising. It influences household spending, inflation, and central bank decisions—making it a crucial variable for currency valuations.
Key Indicators
Monitor average hourly earnings, employment cost index (ECI), and negotiated wage settlements. Rising wages often precede core-inflation pressures, prompting rate hikes that can strengthen a currency.
Context Matters
Compare wage growth with productivity and unemployment. Moderate wage gains with rising productivity are benign; rapid increases amid sluggish output can stoke inflation and erode competitiveness.
Trading Considerations
Unexpected wage surprises in employment reports frequently move FX markets. Incorporate wage trends into macro models, especially for economies where consumption drives GDP.
Beware of Noise
Single data points can be distorted by bonuses, weather, or strikes. Focus on rolling averages before adjusting long-term currency bias.
Related Terms
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