Bank of America reported Wednesday it spent about $36 billion on compensation last year, up by about 10%. Meanwhile, Goldman Sachs, which missed analysts’ expectations for its fourth-quarter earnings, reported spending a whopping 33% more on pay last year. 

“There is real wage inflation everywhere in the economy, everywhere,” Goldman Sachs CEO David Solomon said during the bank’s quarterly earnings call with analysts on Tuesday. 

And it’s not just the big banks that are paying higher wages. U.S. workers at private companies earned an average of $31.31 per hour in December, according to the latest monthly jobs report released weeks ago. Over the past year, workers’ hourly pay has increased by 4.7%. The average hourly wage for production workers was $26.61, up 5.8% year over year.

This is what economists worry about when they say wage hikes are “sticky.” The price of a used car can come back down, in other words, but not that annual raise your company just doled out. So there’s a real concern that these higher wages could lead to entrenched inflation that goes beyond simply short-term supply-chain issues and pandemic-related problems. The fear is that companies get into a cycle where they are basing wages on the soaring consumer price index, which saw prices in December increase 7% over the past 12 months. 

Many economists and financial experts still expect inflation to decelerate later this year, but they were largely wrong about inflation throughout 2021. And with employers baking in higher wages, it could lead to a “vicious cycle of margin compression,” says Diane Swonk, chief economist at accounting firm Grant Thornton.

“One of the greatest concerns the Fed has is that that 7% figure could actually get baked into wages given the unusual labor market power that workers have today,” Swonk noted at a Peter G. Peterson Foundation virtual event last week. 

It’s not that economists don’t want to compensate workers, or see workers get real wage gains, but, Swonk said, once companies do that and inflation decelerates, you get much more “wage push inflation.” That’s when the overall prices of consumer goods and services increase as a result from a rise in wages.

Take domestic services, for example. It’s a labor-intensive service. In December the consumer price index showed the price of domestic services picking up, but Swonk said that isn’t as much as wages have increased—which is evidence of margin compression. When businesses’ margins are squeezed, they tend to raise prices to compensate.

“That’s exactly what you would expect to see of a wage push inflation,” Swonk noted. So there are early signs that this is already happening in some sectors. The question, she said, is can the U.S. derail that before it spirals out of control?