Inflation in the United States is currently at 7% and climbing — but American companies are only expected to increase wages by half that rate.
According to a new Willis Towers Watson survey, American employers expect to increase pay by 3.4% for their workers in 2022. Among the reasons offered by the 1,004 participating firms were inflation and labor shortages — 31% cited the former, while 74% cited the latter.
“Inflation is an element of it, but that’s not the sole factor,” Willis Tower Watson senior director Lesli Jennings explained, as reported by CNBC. “I think the bigger piece is about this race for talent.”
In any case, the 3.4% wage hike would be insufficient to protect living standards from the current rate of inflation — which reached a 7% clip, the highest rate in four decades, at the end of last year. According to data from the Bureau of Labor Statistics, “real average hourly earnings” — which consider the effect of inflation — decreased by 2.4% from December 2020 to December 2021.
“In what was the best year for wage growth that we have seen in many, many years, it still comes up as a loss for many households,” Bankrate chief financial analyst Greg McBride told CNBC. “Their expenses increased even faster and chewed up all of the benefit of whatever pay raise they had seen.”
President Joe Biden, however, is seeking to brush off inflationary worries.
“Today’s inflation numbers show a meaningful reduction in headline inflation over last month,” he said after the Bureau of Labor Statistics’ most recent inflation report. “We are making progress in slowing the rate of price increases. But there is still more work to do — I remain focused on lowering costs for families and maintaining strong economic growth.”
Americans, however, are not buying Biden’s argument. According to a December Fox Business survey, 47% of Americans believe that Biden’s policies are “hurting” the economy, while only 22% believe they are “helping.” Likewise, 46% believe that Biden’s social spending agenda would “push inflation higher,” while 21% believe it would “help lower inflation.”
On Sunday, a CBS News poll found that half of voters are “frustrated” with the Biden presidency. Nearly 50% called themselves “disappointed,” and 40% said they were “nervous.” A scant 25% of voters described themselves as either “calm” or “satisfied.” Most voters pointed to pocketbook issues, with 65% saying that President Biden is insufficiently focused on solving inflation.
Meanwhile, the Federal Reserve is pressed with the dilemma of slashing runaway prices while preventing another recession. In a recent interview, Harvard economist Kenneth Rogoff explained that “it’s not so easy to raise interest rates to fight inflation when public and private data is high, when the stock market is high, when housing prices are high, when the economy is still weak.” Central bankers willing to do so would have “a lot of stomach.”
“And I think the question is: How much are they going to have to step on the brakes to really slow inflation down?” Rogoff said, predicting that the Federal Reserve will be conservative in their rate increases.