Unpacking how wages cause changes in consumer prices by analyzing monthly data with long lags

Abstract

Previous studies have indicated that wages cause changes in consumer prices, but not all. To address the inconsistency, we compare US monthly data between Jan 2008 and Feb 2020 with Norwegian yearly data between 1955 and 2022. Our motive is that fine-grained monthly data with long lags may reveal a more nuanced picture than crude yearly data with short lags. By including 21 monthly lags, the US data showed that average wages caused changes in the consumer price index (CPI) with an alternating oscillatory pattern where positive and negative effects balanced each other out over time. The wage effect on the CPI was strongest after 13-15 months, illuminating the importance of including sufficient lags. The Norwegian data, conversely, using yearly data with a maximum of two lags, neither before, during, or after the oil crises, showed that average wage changes caused changes in the CPI.