Amazon Boosts Wages, Pepsi Raises Prices and Consumers Are Caught in Between

(Bloomberg) -- Inc.’s promise of higher pay is welcome news for workers. PepsiCo Inc.’s plan to raise prices on what they eat and drink? Not so much.

The announcements Tuesday by the online retailing behemoth and the food company show the different impacts of inflation on middle class Americans: Wages are picking up in a tight job market, while firms face higher transportation and materials prices due in part to tariffs on products from China and Canada. And passing those costs to consumers erodes pay gains.

“So you get a raise, but if inflation takes it away, are you really better off?” said Michael Gapen, chief U.S. economist at Barclays Plc. “You have to be careful that it’s not just a money illusion of sorts -- you feel better off but you’re probably not.”

Amazon said it’s boosting its minimum U.S. hourly wage to $15 effective Nov. 1, applying to more than 350,000 full-time and seasonal workers in the country, including those at Whole Foods grocery stores. That follows pledges by other large retailers, including Target Corp. and Costco Wholesale Corp., to boost pay.

Meanwhile, PepsiCo is raising prices on beverages and snacks, blaming higher transportation and aluminum costs for hampering profits. The announcement comes after rival Coca-Cola Co. previously said it had increased prices because of higher commodity prices amid tariffs. Other companies are reporting or warning of price increases including Samsonite International SA and Steven Madden Ltd.

Stagnant Earnings

In September, wages unexpectedly jumped year-over-year by the most since the recession, raising expectations for more increases in worker pay. They’ve still yet to surpass the kinds of gains seen before the 2008 financial crisis, while a pickup in prices means inflation-adjusted earnings have been basically stagnant in recent months.

Companies could be forced to boost pay further to attract and retain workers. Weekly filings for unemployment benefits are near a five-decade low. The monthly jobs report due Friday is projected to show the jobless rate fell to 3.8 percent in September, while average hourly earnings cooled to a 2.8 percent annual gain from 2.9 percent in August.

While Amazon’s move probably won’t show in national economic statistics, “it’s reflective of a tight labor market and the difficulty in finding, training and retaining the right kind of workers,” Gapen said.

At the same time, consumers are facing faster price increases than they were a year earlier, and seasonally adjusted gasoline prices increased 3 percent in August from the prior month, the most since April.

Consumer spending has shown steady, if not spectacular, increases in the third quarter, coming off a strong April-June period. Rising oil prices in recent weeks portend a fresh pickup in gasoline costs that will bite further into Americans’ wallets. Consumer spending on gasoline in the second quarter was the highest since 2014, according to Gapen.

Amazon’s higher wages come before the busy holiday shopping season, which should help recruit workers to deal with surging demand.

“It’s a sign of a healthy economy that we’re gonna see wages rise. Wages are gradually picking up, slower than what you would expect given the unemployment rate below 4 percent," said Alan Krueger, a Princeton University professor of economics, in an interview on Bloomberg Surveillance with Tom Keene.

The company’s move doesn’t just reflect the economy -- it also has political overtones. The company has faced public scrutiny over employee pay and work conditions, something it hinted at in its press release, which said “we listened to our critics.”

One such critic, Vermont Senator Bernie Sanders, on Tuesday congratulated Amazon founder and chairman Jeff Bezos for “doing exactly the right thing” on raising pay and said he looked forward to working with Bezos on boosting the federal minimum wage.

President Donald Trump, too, has targeted the company, saying it crushes small businesses among other complaints, and he’s directed criticism at coverage from the Washington Post, owned by Bezos.

Even so, raises reflect a labor market where firms must boost wages to keep employees in a tight job market, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co.

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“Amazon is coming to face reality,” Feroli said.

©2018 Bloomberg L.P.