Inflation gave most Americans a 2.6% wage cut in April
narrower the work The market for decades is feeding fast pay Growth for millions of Americans, but too high economic inflation These gains are quickly eroded.
The Labor Department reported Wednesday that average hourly earnings for all employees actually fell 2.6% in April compared to the same month a year ago when it factored in the impact of higher consumer prices. On a monthly basis, average hourly earnings declined 0.1% in March, when accounting for rising inflation.
High inflation may be ‘painfully slow’ to fall
By this measure, the average American worker is actually worse off today than they were a year ago, despite nominal wages rising at the fastest pace in years. That is because consumers are facing the highest inflation in a single generation, rapidly reducing their purchasing power.
“Rising wages are pushing general inflation higher – yet workers are still losing their earnings,” said Rocha Vancodry, chief economist at Emsi Burning Glass. “Wages are increasing but not in people’s real income.”
Companies are keen to bring in new employees and raise wages to attract workers who are facing a labor shortage. There were nearly 11.5 million job vacancies at the end of March – an all-time high – while the number of Americans leaving their jobs also rose to a new high.
As a result, workers are seeing the biggest wage gains in years, as companies compete with each other for a limited number of employees. The Labor Department reported last week that earnings rose 5.5% in April from a year earlier, nearly double the pre-pandemic average of 3%.
The combination of high inflation and rising wages has raised concern about the potential for a wage-price spiral, a 1970s-style phenomenon in which high inflation leads to wage increases, which in turn leads to increased spending and higher prices.
But Americans are paying more for daily necessities, with prices increasing broadly in April. Food prices jumped by 1% during the month, marking the 17th consecutive monthly increase for this indicator. The largest monthly increases were in dairy products (2.5%, the steepest monthly increase since 2007), meat, poultry, fish and eggs (1.4%) and cereals and bakery products (1.1%).
Shelter, which accounts for about a third of the CPI, also rose 0.5% in April. The measure is up 5.1% year over year, the fastest rise since 1991.
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Airfares have also gone up as more people begin to travel: Prices have risen 18.6% in a one-month period on a seasonally adjusted basis, the largest single-month increase since the report began in 1963. Last year, according to unadjusted data.
“This is another bullish inflation surprise and suggests the slowdown will be very slow,” said Seema Shah, chief strategist at Principle Global Investors. “Focus will soon begin to shift from where inflation has peaked to a plateau, and we fear it will reach an uncomfortably high level for the Federal Reserve.”