What Could Happen If Inflation Outpaced Wage Growth?

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Stimulus check

According to the Consumer Price Index, the prices of services and goods increased by around 8% in 2022. But, the wages only increased by 4%-5%, as mentioned by the Atlanta Fed wage growth tracker. This implies that the residents don’t earn enough to routinely cover grocery and gas prices.

When inflation manages to outpace wage growth, things start getting more expensive. People can always afford to buy less stuff- but when the cost of living goes up, people start saving less. The Federal Government has raised rates to combat it, which makes it costlier for the average person to borrow money. 

Inflation That Outpaces Wage Growth Can Lead To A Lot Of Problems

Inflation cheapens cash, but housing and stocks remain valuable over time. From 2020 to 2022, the stock market ended up being snowballed, which takes investors with it. According to the Fed data from St. Louis, homeowners could be benefitting from it because their property values have been keeping pace.

For those wondering, inflation eats into one’s purchasing power. People have been spending more when the government has distributed big stimulus payments, and businesses inflated prices. Now, the stimulus payments have been exhausted, but the prices are still up. Goes without saying, when one’s income doesn’t keep up with inflation, one wouldn’t be able to afford as much.  

When inflation goes beyond wage growth, the bills end up being pretty hard to pay. One can always cut down on their discretionary expenses, but they would still have to pay for housing and energy. When the price of rent increases by 6%, and one experiences a rise of just 4% at work, there isn’t much of a choice but to accept the payment and suffer a major hit.