By Ariel Solomon

From January 2021, inflation rose more than 20% compared to a 17.4% growth in wages 

Inflation has been at its lowest; 2.5% since 2021 but wages have not improved for Americans

Contrary to what our grandparents might believe, fewer stops to the local coffee shop and the elimination of our avocado toast habit, won’t have the impact on our overall net worth that they might have expected. That’s because post-pandemic, Americans are still struggling to see their wages keep up with inflation. In fact, since January of 2021, prices have increased by roughly 20%, while wages have only grown by 17.4%, a non-trivial difference when we think about spending power.

Why This Matters: When wages don’t keep up with inflation, it effectively feels like a forced pay cut. Traditionally, workplaces grant annual raises in-line with inflation, which allows workers to keep up with the cost of living but never has there been a situation where wage growth has aligned with inflationary trends. During and immediately following the pandemic, we saw record inflation rates, which materially exceeded wage growth. A combination of factors including: relatively low unemployment, cooling labor demand across several industries, high borrowing costs, and wage-beating inflation, have left many Americans staring blankly into their wallets wondering how we got to this point and whether or not times will improve.  

While inflation has since come down to 2.5%, wages across a majority of industries still have yet to catch up. This is further exacerbated when unemployment is low–4.1% as of September 2024, and/or when there are fewer new job openings than expected – keeping power in the hands of the employer vs. the job seeker. To boot, in 2020, borrowers were able to mortgage homes at rates lower than 3%.  Since then, borrowing rates have more than doubled and are still prohibitively high. 

Situational Awareness: All is not lost, and hopefully we’ve seen the worst of it. The reason why we experienced the pains of inflation so vividly is because our “essentials” took the biggest hit. Groceries, shelter, car insurance- these are just some of the things that materially increased in price coming out of the pandemic; all things we likely can’t go without. The good news is – inflation is coming down, getting closer to the Fed’s target of 2%. And wage growth has shown signs of closing in on that gap, though some industries are improving faster than others. 

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