Wages Versus Inflation

Some economists claim that wage inflation is a main contributor to the inflation we’re experiencing. However, we don’t see that the numbers hold this theory to be true. We lean in the direction that the pandemic with the supply constraints, pent up demand, Russian invasion, etc. are responsible and those issues are easing. Hence, inflation is declining.

According to Statista, inflation rates exceed wage increases. In April 2021, inflation was 4.2% versus wage growth of 3.2%.

If you review 2022, inflation reached a 40-year high in June 2022 of 9.1% while annual inflation ended up at 8%. The high for wage growth in the summer 2022 was 6.7%. Subsequently, inflation has declined but so has wage growth.

According to the U.S. Bureau of Labor Statistics (BLS), from December 2021 to December 2022, private corporations’ wage costs increased 5.1%. Sounds pretty good until you adjust it for inflation. When adjusted, employer wage costs actually fell 1.2%.

Seems that companies continue to get a “good deal” as wages are not keeping pace with inflation which negatively impacts the ability of workers to keep up. It also causes us to doubt that wages are the culprit for inflation.