Blurts & Spasms

The real issue has to do with “real wages,” or wages adjusted for inflation. That is, how far each dollar earned can actually go (including those items we “can’t skimp on”), and how many of those dollars we’re actually earning. The chart below (from econbrowser.com) illustrates what’s been happening in that regard:

You can see that there can be high variability from year-to-year, and especially recently (since COVID). In the past couple of years, wages have been slowly beating inflation…so “real” wages have been rising. With more recent statistics, however, the softening of the job market indicates a possibly deceleration of these wage increases. So U.S. workers may have peaked.

For lower income workers, the reality is that certain types of inflation (in particular food, energy, and rents) have the potential to affect that group’s “real wages” differently than U.S. workers as a whole. Why? Because folks in the lowest 10% income bracket have 35% of their budget allocated to these items, while folks in the highest 10% income bracket have only 13% of their budget allocated to these items.

But here’s the rub: that lowest income bracket has received recent wage increase that have actually outpaced those inflation-sensitive goods and services. Which means that, at least up until very recently, they are actually still getting ahead. You can read more about this here:

https://www.employamerica.org/blog/energy-food-rent-how-will-rate-hikes-help-the-poor-face-their-rising-costs/

That said, every situation is different. For folks on fixed incomes, like a retirement pensions, disability, or social security, there has not been the same rapid offset. Even with annual inflation adjustments to social security (COLA), money simply does not go as far for these folks, and they tend to be more susceptible to “inflation shock.” Here is an article that discusses the impact of inflation on retirees:

https://crr.bc.edu/how-does-inflation-impact-near-retirees-and-retirees/

My 2 cents.