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Tags: inflation | wages | economy | prices | income

Inflation Delivers 2 Percent Pay Cut, Despite 3.6 Percent Wage Hike

Inflation Delivers 2 Percent Pay Cut, Despite 3.6 Percent Wage Hike
(Mark Wilson/Getty Images)

By    |   Tuesday, 27 July 2021 05:53 PM

Hourly wages rose 3.6% this June from last, but inflation has ostensibly delivered a nearly 2% pay cut, the Bureau of Labor Statistics reported.

The June wage increase to an average of $30.40 is the largest since 2009, the Economic Policy Institute reported, but 5.6% inflation in the consumer price index has put a negative drag on "real wages," a figure that measures income while accounting for the cost of goods and services.

"The staples of American life are increasing exponentially," Sen. Tim Scott, R-S.C., told CNBC, citing higher prices for gasoline, laundry, airfare, moving costs, hotels, bacon and TVs.

Many economists agree with congressional Republicans who denounce the ills of inflation as the Biden administration and a Democrat-controlled Congress seek to pass massive spending packages to bolster infrastructure and social programs, and progressive Democrats in Congress propose to reduce the nation's reliance on fossil fuels under the Green New Deal.

"If prices are growing faster than wages, then people are getting inflation-adjusted pay cuts," American Enterprise Institute economist Michael Strain told CNBC. "Ultimately, this varies dramatically for every individual."

At 5.6%, inflation is the highest it has been since August 2008, right before the Great Recession.

"Inflation is a tax," Moody's Investors Service Vice President William Foster told CNBC. "That's the best way to think about it."

The impact is felt most by the lowest-earning workers, who struggle to buy the everyday items that are now more expensive and have less income to cover the rising cost, according to Foster.

Some households are not hit with the CPI inflation if they are not buying the items that rose the most, such as used vehicles and gas, which have risen 45% since last June, according to the report.

"They're trying to minimize the evils, but they're both evils," University of Chicago economics professor Casey Mulligan, who was an adviser in the Trump administration, told CNBC.

Food prices are up just 2.4%, though, and are covered by the average wage increase.

"People respond to price changes by shifting their consumption," University of Wisconsin-Madison economics professor Noah Williams told CNBC.

Economist also warn the wage increases might be a result of a number of pandemic-caused layoffs for lower-wage workers, but as people go off unemployment as the $300 weekly benefit bonus expires and employers hire lower-wage earners back at higher pay, wages could continue to go up over the long haul.

"It could be a little misleading," Susan Houseman, director of the W.E. Upjohn Institute for Employment Research, told CNBC.

The composition of the workforce ''is especially changing during downturns and recoveries, so one has to be careful about interpreting these data."

Inflation is less likely to be impacted in ways like the return to work, though, economists warn.

"Inflation is not going to be transitory," Allianz SE chief economic adviser Mohamed El-Erian said last week. "I have a whole list of companies that have announced price increases, that have told us they expect further price increases, and that they expect them to stick."

But wage increases tend to be more permanent than inflation pressures.

"We typically don't give people wage cuts," Housman told CNBC. "Employers typically don't do that.

"So in that sense, they're stickier."

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Hourly wages rose 3.6% this June from last, but inflation has ostensibly delivered a nearly 2% pay cut, the Bureau of Labor Statistics reported.
inflation, wages, economy, prices, income
536
2021-53-27
Tuesday, 27 July 2021 05:53 PM
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