Amazon Unveils New $1 Billion Wage Hike Plan, Adding to Fed Inflation Headache

Amazon will spend an extra $1 billion boosting warehouse and transport workers’ pay, just as the Fed is hoping to see moderating wage growth bring down inflation.

Amazon  (AMZN) – Get Inc. Report shares moved lower Thursday, alongside declines for many other big-tech names, after the world’s largest online retailer unveiled pay increases for warehouse and transportation workers.

Amazon said employees would earn between $16 and $26 per hour, with average starting salaries rising by $1, to $19 per hour, as it gears-up for the peak of the holiday retail season. Earlier this week, the group said it will add another ‘mini Prime day’ event in October to capture demand from value-focused consumers and focus on members of its Prime program.

Amazon, one of the biggest private employers in the United States, said the pay increases would cost around $1 billion over the next year.

“Continuing to invest in pay, providing easy access to earned wages at any time during the month, and offering great benefits and career advancement opportunities are all part of our long-term efforts to be the best employer in the world,” said John Felton, Amazon’s senior vice president of worldwide operations.

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Amazon shares were marked 1.4% lower in pre-market trading to indicate an opening bell price of $116.33 each, extending its six-month decline to around 32%.

Earlier this month, Target  (TGT) – Get Target Corporation Report said it will hire around 100,000 employees to support its holiday sales effort, with starting wages between $15 and $24 per hour. Walmart  (WMT) – Get Walmart Inc. Report is looking to add around 40,000 seasonal additions, the biggest U.S. employer said in early September. 

Amazon’s wage hikes, as well as advanced hiring plans of its major retailing rivals, could add upward pressure to a key lever of U.S. inflation over the coming months. 

Average hourly earnings in the U.S. rose by 5.2% in August, the Labor Department reported earlier this month, to $32.36 per hour. Job openings, meanwhile, are estimated at more than 11.2 million, nearly double the 5.67 million pool of available workers, according to the Job Openings and Labor Turnover Survey.

Federal Reserve Chairman Jerome Powell has consistently mentioned labor market ‘tightness’ in his justification for the higher interest rates needed to tame the fastest inflation in four decades, which he has said will cause “some pain” for the broader economy, and the ongoing rise in average hourly earnings remains a crucial component for his concern. 

“We have always understood that restoring price stability while achieving a relatively modest increase, in unemployment and a soft landing would be very challenging,” Powell told reporters in Washington last week following the Fed’s third consecutive 75 basis point rate hike, which lifted the Fed Fund rate to a range of between 3% and 3.25%  

“We don’t know, no one knows whether this process will lead to a recession or if so, how significant that recession would be,” he added. “That’s going to depend on how quickly wage and price inflation pressures come down, whether expectations remain anchored, and whether also, do we get more labor supply, which would help as well.”  

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