Inflation up, real earnings down – Again
Today, the Bureau of Labor Statistics (BLS) announced that inflation was 0.6 percent in January and 7.5 percent over the year (the increase was 7.9 percent in the Midwest). This is the fastest annual rate of increase since February 1982. Stripping out volatile food and energy prices to get ‘core inflation,’ prices were up 6.0 percent over the last year, “the largest 12-month change since the period ending August 1982.”
The BLS reports that:
Increases in the indexes for food, electricity, and shelter were the largest contributors to the seasonally adjusted all items increase. The food index rose 0.9 percent in January following a 0.5-percent increase in December. The energy index also increased 0.9 percent over the month, with an increase in the electricity index being partially offset by declines in the gasoline index and the natural gas index.
These numbers are bad. I wrote in October about how America might be in for higher inflation, and, I’m sad to say, the data is bearing that out so far.
Another BLS release today illustrates why this is a problem. Data for real earnings — that is, adjusted for inflation — showed an increase of 0.1 percent from December to January, owing to “an increase of 0.7 percent in average hourly earnings combined with an increase of 0.6 percent in the Consumer Price Index for All Urban Consumers (CPI-U).” Furthermore, “a decrease of 0.6 percent in the average workweek” combined with “the change in real average hourly earnings” meant that “Real average weekly earnings decreased 0.5 percent over the month.”
Over the past year, the BLS reports,
Real average hourly earnings decreased 1.7 percent, seasonally adjusted, from January 2021 to January 2022. The change in real average hourly earnings combined with a decrease of 1.4 percent in the average workweek resulted in a 3.1-percent decrease in real average weekly earnings over this period.
You might have more dollars in your paycheck than you did this time last year, but on average, they will buy less. And it is real, inflation-adjusted numbers that matter for economic well-being, not nominal ones.