How is it that inflation can affect everything EXCEPT wages?
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Because companies are increasing prices to have ever steady or even growing profits. They don’t care about ever increasing or growing wages because it costs them money instead of making them money, it’s that simple
Inflation does increase wages. It just happens more slowly.
How much something costs is determined by the seller and is sold when a buyer agrees on that price. When you go to the grocery store the grocery store will set prices based off how much people are willing to pay for it, and how much it cost them to get. If apples suddenly cost them 50% more to buy then you can count on them increasing the price to reflect the new cost to them.
When you have a job you’re selling your labor to your employer. How much money you get paid is determined by how valuable the work you can do is, and how much money you need to afford the things you want. But unlike with the grocery store there are more moving parts in setting prices. Everyone individually negotiates their salary whereas the grocery store just changes the listed price for their apples.
The price you sell your labor at doesn’t change daily like apples at the store might. It changes when negotiated or reviewed.
Because inflation doesn’t affect everything.
Inflation has never been a single measure that means all prices increase by the same amount. Things like the CPI are literally defined as an AVERAGE of the change of prices. I strongly recommend you look at the BLS website on the CPI and how they calculate it. Random redditors are very bad at looking at primary sources and the BLS is extremely transparent about what exactly goes into the CPI and how it is calculated and why they make changes they do. You don’t need to guess, they literally tell you. And Reddit is absolutely full of BS on this front as conventional wisdom is made by the equivalent of that doomsayer standing on a corner with a cardboard sign and they have never actually read anything about how inflation rates are actually calculated and what impacts them.
Details on the CPI and what is increasing/decreasing in prices. Notice how not everything is going up by the same rate. https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category.htm
Details on what is included in the various CPI categories: https://www.bls.gov/cpi/factsheets/
Everything in an economy is affected by supply and demand. This applies to food, cars, houses, and yes labor. The thing about the last few decades is the demand for labor has been dropping. That’s what happens when we say workers are getting more productive. Rather than producing more, companies for the most part have been cutting employees. An army of accountants that large businesses used to hire to run their finances are reduced to a small team of accountants with the use of accounting software. This is what happens when supply of labor outstrips demand for labor, wages go down. And this will only continue as our economy becomes more and more automated and worker productivity continues to rise. There are plenty of systemic reasons for it but from a pure supply/demand standpoint this is why wages have not kept up with inflation. Because there has been a deflationary pressure on wages for decades. And this is why moving manufacturing back to US shores from China wont do much. It’ll produce some jobs but manufacturing is never going back to the old days of armies of factory workers. It’ll be a handful of specialists managing automation.
That’s not to say inflation doesn’t have wide ranging impacts. But it strongly depends on what is inflating. For example, the problem we face now is inflation of energy prices due to shortages driven by Russia’s actions leading up to and immediately after the Ukranian invasion. People conveniently forget that Putin was literally choking Europe in the leadup by limiting gas exports that caused prices to rise and depleted Europe’s gas reserves. There’s a reason why US intel was saying Russia was planning for an invasion, because they literally were.
Plus there’s the ongoing inflation in producer price inflation: https://www.bls.gov/ppi/
That’s being driven by supply chain issues and rising labor costs which will have wide reaching impacts as well.
Also Redditors love to bring up Milton Friedman as some all knowing inflation god. His age old wisdom that all inflation is due to monetary supply is sorely lacking as his economic theory hasn’t worked to predict anything accurately about inflation for the last 30+ years.
It depends on how inflation is calculated. It’s usually calculated as the cost of a basket of goods. Which doesn’t factor wages.
Also things like housing, used cars, and various other items that are large costs to the average person also aren’t factored in.
If you are in business your goal is to maximize profits. Imagine you own a bread factory. The flour and the mixing machines for the flour aren’t determined by you. Those prices are set by who sells your raw ingredient and processing machines.
The only place you have control of cost is labor. So your job as someone trying to maximize profits is to cut labor costs or at least keep them stagnate to inflation. You can’t do that with the flour it’s price is always the same and only increases, and since it comes from a third party you have no control over that.
Wages HAVE been going up, just not for everyone. CEOs in particular are doing well, as you may have noticed. And in my city (in the US), every fast food joint is currently advertising $15/hr starting wages at least, which 2 years ago was $12/hr. Some industries are affected more than others, and not everyone’s wages are going up
Unless there is a product and service price freeze and minimum wage is raised twice, we won’t break the cycle. However, that’s more of a social economic issue that would become political. **Note: Not necessarily what I believe. This is just pure thinking about it.**
Example:
If prices for products and services froze for 1 year. And minimum wage was increased twice in that year in 6 month increment, then the following year prices could raise up a slight bit. While again raising the minimum wage one more time during the first 6 months of the new year. This would would be beneficial to some degree and give people breathing room and could possibly raise some out of poverty.
I think a lot of people have a wrong intuition about inflation. It’s not a dial you can turn or a number you can fill in on your taxes. It is simply the price change on “goods” over time. And often goods don’t all change at the same time, or at all.
It is usually calculated using by just averaging across a wide range of products (a virtual shopping basket, so to speak) and noting the price difference over time.
This means that if gas (which is part of the basket) gets more expensive due to a war, inflation goes up. If there has been a good harvest, price and inflation go down.
Now of course a lot of institutions follow these prices and change their policies accordingly, affecting everything in our daily lives. This way it trickles down and feeds back into the economy.
Wages do go up, just not necessarily uniformly across industries. My LinkedIn has been crazy over the past year, and my income went way up as a result.
To answer this, ask how other things rise in price.
Milk at your local grocer doesnt just magically raise in price when Jerome Powell announces inflation numbers. That inflation number is /after/ the grocer and dairy farmer have already raised them.
The dairy farmer or grocer made a conscious decision, just like employees need to make a conscious decision to go ask for raises to keep up with inflation. Employers, just like customers at a grocery store, arent going to just fork over extra cash without being told they /HAVE/ to.
So employees of the world, go make your case. Employers arent going to hand it to you on a silver platter.
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