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Don't Be Complacent About Inflation

An unanticipated rise in inflation could hurt your portfolio, even if the absolute level remains low, says Vanguard economist Roger Aliaga-Diaz.

Benz: Is the fact that inflation in the U.S. is so low, does that mean the lack of wage growth is less of a concern then perhaps it otherwise would be?

Aliaga-Diaz: That's a good point. Certainly that has been part of the mystery and the puzzle that many economists are referring to today, even including Chairman Yellen. The fact is that wage growth is driven by three key factors. The main factor is the strength of the labor market and unemployment. Clearly on that account that's not producing stagnant wage growth--on the contrary it's starting gradually to push wages up to a normal level. The fact is that in addition to unemployment there are other factors that are suppressing that wage growth, that are offsetting this upward pressure from labor markets. One of them being productivity growth.