The tightest labor market in years is fueling rapid wage gains for most workers – the only problem is that red-hot inflation is quickly eroding those increases.
The Labor Department reported on Friday that average hourly earnings for all employees actually declined 1.7% in January from the same month a year ago when factoring in the impact of rising consumer prices. On a monthly basis, average hourly earnings increased by just 0.1% in January, when factoring in the 0.6% inflation spike.
MOST SMALL BUSINESSES SINCE 1974 ARE HIKING PRICES TO OFFSET INFLATION
By that measure, the typical US worker is actually worse off today than they were a year ago, even though nominal wages are rising at the fastest pace in years. That’s because inflation is also surging: The government reported Thursday morning that the consumer price index (CPI) rose 7.5% in January from a year ago, marking the fastest increase since February 1982, when inflation hit 7.6%.
The CPI – which measures a bevy of goods ranging from gasoline and health care to groceries and rents – jumped 0.6% in the one-month period from December.
So-called core prices, which exclude more volatile measurements of food and energy, climbed 6% in January from the previous year – a sharp increase from December, when it rose 5.5%. It was the steepest 12-month increase since August 1982.
“US annual CPI is the highest since 1982, and what’s worse is that this likely isn’t the peak,” said Seema Shah, chief strategist at Principal Global Investors. “Higher-than-expected monthly gains in core CPI indicate continued underlying heat and will do nothing to relieve pressure on the Fed to tighten sharply and urgently.”
Price increases were widespread: Although energy prices rose just 0.9% in January from the previous month, they’re still up 27% from last year. Gasoline, on average, costs 40% than it did last year. Food prices have also climbed 7% higher over the year, while used car and truck prices – a major component of the inflation increase – are up 40.5%. Shelter costs jumped 0.3% for the month and 4% year-over-year.
The inflation spike has been bad news for President Biden, who has seen his approval rating tumble as consumer prices rise. The White House has blamed the price spike on supply-chain bottlenecks and others pandemic-induced disruptions in the economy, while Republicans have pinned it on the president’s massive spending agenda and his energy policies targeting the oil and gas industries.
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Biden acknowledged the inflation data on Thursday was “elevated,” but noted that many economists expected consumer prices to fall by the end of 2022 as supply chain disruptions begin to dissipate and the Federal Reserve further tightens policy. He touted the 0.1% monthly increase in wages.
“While today’s report is elevated, forecasters continue to project inflation easing substantially by the end of 2022,” Biden said in a news release. “And fortunately we saw positive real wage growth last month, and moderation in auto prices, which have made up about a quarter of headline inflation over the last year.”