Strait of Hormuz Closure Drives Soaring Prices, Stalling Real Wage Recovery in Advanced Economies

With the prolonged closure of the Strait of Hormuz resulting in a surge in prices, the recovery of real wages in advanced economies such as the United States and the United Kingdom has stalled.

Reuters Yonhap News

According to the Financial Times on the 25th (local time), the U.S. inflation rate in April jumped to 3.8% year-on-year, while average hourly wages rose by only 3.6% over the same period. This means prices have risen faster than wages — the first time this has happened in two years.

The UK is facing a similar situation. For the three months ending in March, the average wage of UK workers excluding bonuses increased by just 0.1% in real terms on an annualized basis. With sluggish employment, real wages are expected to decline in the coming months as inflation rises. Similarly, in the eurozone, purchasing power lost due to the inflation shock in 2022 has only just been regained, but the latest energy shock is putting renewed pressure on households.

Klaus Vistesen, economist at Pantheon Macroeconomics, projected that the growth rate of real wages in the eurozone would be close to zero this year. He analyzed that in countries lacking the fiscal capacity to protect consumers, such as France, the real wage growth rate may have already fallen into a "significant negative" territory.

As real wage pressures mount, diplomatic efforts to end the Middle East conflict are also intensifying. Iran's top negotiation team has visited Doha, Qatar. Mediating countries are working to coordinate the final details of a peace agreement, including a phased reopening of the Strait of Hormuz.

However, some analysts point out that even if an agreement is reached, it may not be enough to curb rising prices. Diane Swonk, chief economist at KPMG US, said, "The war is disrupting supply chains, and even if the Strait of Hormuz reopens tomorrow, it will push prices higher than before."

According to the FT, the pressure on workers is giving policymakers two distinct concerns. One is that as households cut back on spending, the shock of the war could have a greater impact on economic growth. If demand slows, companies may also reduce hiring. The other concern is that wage increase pressures could keep inflation high even after energy prices fall.

Michael Feroli, chief U.S. economist at JPMorgan, believes the decline in real wages is "entirely due to the Middle East conflict." He said that if the Strait of Hormuz reopens and energy prices stabilize, "real wages will start to rise again."

However, economist Swonk added that high prices will "reduce corporate profit margins and put a burden on hiring," adding, "This is precisely how persistent inflation spreads into labor market problems."

This content was produced with the assistance of AI translation services.