Wage Increases Can’t Keep Up With Inflation

The most recent wage data released by the Labor Department showed a 5.7% increase in wages for the past year, yet still below the current inflation annualizing 7.5%. With inflation outpacing wage growth, workers and consumers alike are experiencing shrinking discretionary income. Such dynamics reduce the purchasing power of consumers, making it difficult to maintain customary spending habits.

Some economists believe that wage increases may be ending soon as companies may start to trim employee expenses and even start reducing staff should a recessionary environment evolve.

The Department of Labor tracks wage growth versus inflation as average real hourly earnings, which subtracts inflation from gross wages. Even though wages grew at an annualized rate of 5.7% from January 2021 to January 2022, wages still didn’t keep up with the rising costs of various food items over the same period.

Sources: Department of Labor

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