Historically High Wage Growth Not Keeping Pace With Inflation

Prices Rising Faster Than Wages

Inflation is increasing at its fastest annual pace in 40 years, and Americans’ purchasing power is taking a hit. Economists explain this is because while wages have grown by 5.1% over the past 12 months, the latest CPI data show prices rose 7.5% within the same timeframe.

With wages trailing the pace of inflation in this manner, consumers feel the squeeze, especially on key spending items such as groceries or gas for the car. The numbers can be startling when put in context: in a survey from Financial Capital, respondents said they’d need $122,000 per year to feel financially secure, which is two times the national average.

Living Paycheck to Paycheck

Reports from LendingClub show over 6 in 10 Americans have been living paycheck-to-paycheck over the past couple years. The firm’s studies indicate households are most impacted by things like food and fuel because they’re not discretionary: you need to eat and commute.

That said, costs are up across the board, and the number of people living paycheck-to-paycheck has increased recently. Per LendingClub, December’s number came in at 61%, while January checked in at 64%. The same survey of 2,600 adults found 48% of people earning six figures, over three-times the poverty line for a typical four-person household, are living paycheck-to-paycheck.

How to Respond: Budgeting

Financial planners suggest a number of steps in terms of budgeting and preparing for rising prices. In some cases this can include refinancing a mortgage, paying off debt, or using a debt consolidation loan for credit card balances. An energy audit could also make sense, as heating and cooling your home is very expensive, and proper insulation makes a difference.

Other expense items to consider are things like car insurance and the potential to get a lower rate, the elimination of unused or unneeded subscriptions, and shopping smarter for groceries such as opting for store brands. Finally, boosting income is a basic but vital option: potentially by selling unused items or asking for a raise. Overall while wages are growing, it’s not fast enough for many — and inflation is the main reason why.

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