Inflation vs. Wages: Which Is Rising Faster?

Although it’s not healthy to pay too much attention to social media, every now and then CFC economic team members can’t help themselves when they read posts suggesting that people’s rage about the economy is not based on reality. Some experts claim that wages have increased more than inflation for the majority of workers as there have been more months where wage growth was higher than the inflation rate. So, let’s do a fact check. 

First of all, macroeconomic indicators are typically either aggregate or average. We do not have much insights on the majority of individuals based on official data. Secondly, counting the number of months when wage growth is higher than inflation doesn’t provide proof that wages have grown more than prices. For example, one month of 9% inflation and 4% wage growth followed by two months of 3.5% inflation and 4% wage growth doesn’t mean that wage growth has been higher than inflation. The Consumer Price Index (CPI) value was 259.25 in February 2020 and 313.21 in April 2024—an increase of 21%. Over the same period, average hourly earnings grew from $28.55 to $34.75—an increase of 22%. One may claim that wages have caught up, but not that they have grown more than prices in a statistically significant way. Also, remember that these are average numbers; they provide no insights on the majority of workers. 

Thirdly, timing of money matters. When inflation rose faster early on, those who lived paycheck to paycheck might have fallen into debt to cover their living expenses. After their wages caught up, they still could not break even because they piled up debt plus interest to pay back. 

Finally, frequency of money matters. While grocery stores and gas stations change their prices as frequently as needed, workers get a raise less frequently. When CPI shows prices increased 0.3% from the previous month, most prices really increased. When wage data shows a 0.3% monthly increase, most workers did NOT get that raise unless they changed jobs or received an annual raise. 

Confusing data with facts can lead to problematic conclusions—a mistake that even experts are not immune to. Most of the time, all we have is opinions and analysis. This piece is exactly that.