As the economy recovers from COVID-19 and the lockdown-induced recession, many Americans are bringing home nominally larger paychecks. However, soaring inflation is outpacing wage growth — eroding the purchasing power of American households.
According to data from the Bureau of Labor Statistics released on Wednesday, “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.”
The agency also reported that consumer prices are rising at a 7% clip as of December 2021 — the highest rate in roughly 40 years. President Joe Biden, however, is seeking to brush off the concerning phenomenon.
“Today’s inflation numbers show a meaningful reduction in headline inflation over last month,” he said on Twitter. “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 President Joe 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.”
Other insights from the poll include:
- Rising prices over the last six months have caused financial hardship for two-thirds of voters. That climbs to three-quarters among those living in lower-income households.
- By more than two-to-one, people say the president’s economic policies have hurt rather than helped them personally. That’s largely driven by almost two-thirds of Republicans saying they’ve been hurt — nearly five times the number of Democrats who say the same. For comparison, one-third of Democrats said they had been hurt by former President Donald Trump’s economic policies in a December 2018 Fox News survey.
- Just 1 in 6 voters say they are better off financially than they were a year ago, and a majority rates their personal financial situation negatively. That’s a reversal since August, when over half said their finances were in positive shape.
Meanwhile, Lawrence Summers — a Harvard University economist and a former economic advisor to President Barack Obama — is denouncing the Biden administration’s attempts to minimize and deflect from the reality of inflation.
“We have a serious inflation problem whatever the precise CPI reading,” he tweeted. “Inflation is running well ahead of anything seen during the guns and butter Vietnam episode and 50 percent above where it was when Pres Nixon imposed wage price controls.”
“White House cites leading economists as foreseeing sharp declines in inflation over next two years. Certainly could happen,” he continued. “On other hand same kind of consensus was looking for inflation at well below 3 percent this year and it turned out to be 7.”