By Rick Glaze

U.S. employment showed growth in almost all sectors of the economy last month, as 243,000 nonfarm jobs were created.

In January the unemployment rate hit a four-year low. Employed workers benefited from an hourly wage increase of 3.5 percent since last year. As I have mentioned before, two decades ago unemployment below 6 percent was considered full employment because of the transient nature of that part of the work force. The current reading of 4.8 percent indicates an economy running on all cylinders.

But wait! Doesn’t conventional wisdom say that when the job market tightens up, wages increase to lure employees - which results in inflation? While that may be common thinking, things are different in the current market. In fact, they have been different for some time.

Some inflationary pressure is expected, but two important factors stand in the way of rapid inflation. First, productivity is alive and well. Technology has made businesses of all sizes more productive. If an employee receives a 10 percent pay increase but he or she produces 15 percent more, the extra productivity absorbs the extra cost - which is not passed on to the customer.

The second factor keeping inflation low is rooted in the global economy. International competition runs rampant. Transporting goods is easy, but the phenomenon of global information technology has kept inflationary pressures low by making other services competitive.

Remember, inflation is a hidden tax. It affects everyone’s pocketbook, but, like burdensome overtaxation, it also affects job and wage growth. So when interest rates go up in order to slow inflation, it’s probably a good thing.

Rick Glaze is president of Glaze Capital Management of Los Altos and a registered representative of and offers securities through First Allied Securities. Member NASD/SIPC. For more information, call 934-0920.