COMP News – The United States saw inflation of 7% in 2021, a number much higher than in years past. Nonetheless, most industries’ wages did not keep pace with inflation, effectively wiping out pay increases for most Americans.

Inflation rose 7 percent last year to its highest level in four decades, as supply chain disruptions and labor shortages collided with growing demand from U.S. consumers. Gas prices are up 50 percent from a year ago, while the price of meat, fish and eggs is up nearly 13 percent, according to the U.S. consumer price index.

While hourly wages increased last year, they did not keep pace with inflation. Thus, real wages, or the purchasing power of wages, decreased.

But in an unexpected twist, the same strong economic recovery that is emboldening workers is also driving up inflation, leaving most Americans with less spending power than they had a year ago.

Although average hourly wages rose 4.7 percent last year, overall wages fell 2.4 percent on average for all workers, when adjusted for inflation, according to the Labor Department.

In fact, of private-sector industries whose wages were measured by the Bureau of Labor Statistics, only one industry’s wage increases outpaced inflation in 2021.

The only sector where pay increases outpaced inflation last year was in the leisure and hospitality industry, where workers generally make the lowest hourly wages of any sector. Workers there saw a 14 percent average raise from about $17 an hour to more than $19.50, according to an analysis of Labor Department data.

Some fear that a “wage-price spiral” may take effect in which workers demand higher pay to keep pace with rising prices while businesses demand higher prices to afford to pay higher wages.

If consumers and businesses start expecting inflation to continue for a long time, each side will keep trying to outbid the other — businesses by charging higher prices and workers by asking for higher pay — fueling yet more inflation.

Federal Reserve Chair Jerome H. Powell said last week that he is not yet seeing evidence of such a “wage-price spiral” but that the Fed is watching these trends closely as it prepares to combat inflation with interest rate rises this year.

To read more about The Great Resignation has become The Long Resignation, click here.

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