Rising quit rates are a possible inflation signal

▪ A surge in quit rates, labelled by some ‘the great resignation’, is underway in a number of economies, most notably the US. The jump likely reflects tight labour markets and possibly a reaction to rising inflation. With a potential feedback effect from higher wages to prices, these developments represent an area of considerable uncertainty and an upside risk to inflation. ▪ The US quit rate has surged since economic reopening in early 2021 and at 3% is now at the highest level in two decades. With some lag, pay growth has been rising too and could go higher still based on the recent trajectory of quits. ▪ Increasing US quit rates and a recent rise in the premium of pay growth for job switchers over job stayers are possible signals that workers are becoming more sensitive to inflation developments in the context of tight labour markets. ▪ A soaring quit rate is also visible in the UK where job‐to‐job moves and resignations are at their highest in 20 years. The upward trend in UK pay growth is less clear than in the US, but some indicators suggest both quits and wage growth could strengthen further in 2022. ▪ In the eurozone, labour market indicators look more subdued. The share of new starters in employment has risen in recent quarters but only back to the pre‐pandemic average. French vacancies have risen sharply; in Germany, however, a similar vacancy trend is not evident. Quit rates are flat in Japan. ▪ Optimistically, rising quit rates may be symptoms of a temporary supply‐and‐demand mismatch in reopening economies. But more pessimistically, surging quit rates could signal a shift to a higher inflation regime. As such, quit rates look like a key indicator for investors and policymakers to keep an eye on.