The most recent nonfarm payrolls data, released last week, showed that employment growth in December was well below expectations as employers added only 199,000 jobs. However, we continued to see signs of a tightening labor market, with the unemployment rate falling to 3.9% and wages rising 0.6% month-on-month and 4.7% year-over-year. With demand for workers far outstripping supply, persistent wage increases have given a big boost to talk of "sticky" inflation, as this week's upcoming CPI report could show a year-on-year increase of as much as 7%. In addition, there may be room for wages to rise.

Going into the new year, the minimum wage was raised by an average of 41 cents in 21 states, with many states approving gradual increases over the next few years. While only a small percentage of workers earn the minimum wage, these increases raise the bottom line for all low-wage employees. In addition to these minimum wage increases, workers will receive the biggest cost-of-living adjustment in decades. Just as Social Security adjusts each year to changes in the cost of living, many private employers make similar adjustments to their compensation structures.

Additionally, it appears that most employers implemented these changes in January, as reflected in the non-seasonally adjusted distribution of monthly wage growth from 2010 to 2019. When we turn to next month's jobs report, we're likely to see even bigger wage increases, as minimum wage and cost-of-living-adjusted increases look set to far outpace historical seasonal patterns.