Inflations low – buying power is back up
Iacurci 6-22 [Greg; reporter covering personal finance at CNBC.com, with a focus on travel, retirement, investing, labor market trends and the economy.; 6-22-2023; “Americans’ buying power rose for first time since March 2021 amid falling inflation”; CNBC; https://www.cnbc.com/2023/06/22/amid-lower-inflation-buying-power-rose-for-first-time-in-2-years.html;]//LASA-بيلال
Workers saw their buying power grow in May for the first time in two years, as inflation continues to fall from its pandemic-era peak.
If the trend continues, it’d be welcome news for households, who could lean more on their paychecks instead of their savings or credit cards to support everyday spending, economists said.
“Real” hourly earnings increased by 0.2%, on average, this May versus May 2022, according to the U.S. Bureau of Labor Statistics.
Real earnings represent an average worker’s annual wage growth after accounting for increased costs for household goods and services, as measured by the consumer price index, or CPI.
A positive number means the average worker experienced an increase in their standard of living. A negative number means the opposite: that salaries can’t buy as much as they did a year ago.
May’s figure was the first positive annual reading since March 2021, according to BLS data. Before the latest reading, workers had endured 25 consecutive months of eroding buying power, the longest stretch on record, said Aaron Terrazas, chief economist at Glassdoor, a career site.
“This is clearly a function of inflation starting to come down,” Terrazas said.
“Real wages turned positive, and that’s great,” he added. “But many [people] are just playing catch-up for what’s happened over the past two years.”
‘Unprecedented’ pay jumps during pandemic
Wage growth started to spike in 2021 as workers enjoyed the benefits of a hot job market. Businesses’ demand for workers jumped to record highs as the U.S. economy reopened broadly after its Covid pandemic-induced lull. Employers raised wages at the fastest pace in decades to compete for a limited pool of talent.
“Many companies did unprecedented pay increases during the pandemic,” said Julia Pollak, chief economist at ZipRecruiter.
In some cases, workers’ pay growth was strong enough to outrun inflation’s impact — especially for those who quit their jobs for higher-paying gigs elsewhere.
For the average person, however, inflation swamped those wage gains. Such households saw their bills for food, rent and filling up the gas tank rise faster than their paychecks.
The CPI, an inflation barometer, peaked at 9.1% in June 2022 — the highest level in four decades — but has since declined to 4% on an annual basis.