This thought came to me as I was food shopping. So I know there are things that increase the price of certain items (beer, cigarettes, sugar tax – UK) but they also increase with inflation each year like other foods such as bread.
Apparently, the average inflation raise over the last 10 years in the US is 2.37% as of July 2023. So if it is the same in another 10-years, over the space of 20 years inflation would be 4.74%, if we say inflation is the same? And so on and so on. If it continues wouldn’t prices, for say, bread just end up getting higher and higher and be like $10-15+? And as wages don’t rise with inflation the same way foods do fewer and fewer people each decade could afford it?
Now this is just random thoughts I had when shopping and I am not making any comments on any politics. All I wanted to know is, is my thinking true that prices will just go up and up indefinitely decade-on-decade, why or why not? And I am an idiot so imagine I am 5.
​
Edit: Went to sleep and woke up to about 300 notifications, thanks for your explanation to a Neanderthal like myself.
​
In: 4366
This is a minor thing, but inflation is compounding so inflation over 20 years would not be 2x 10-year inflation.
~~The correct math would be 1.0237 * 1.0237 if you wanted to double the timeframe assuming the same rate, which is 1.04796 or 4.80% inflation over 20 years.~~
2.37% is the annual rate of inflation, stays the same in both the 10 year and 20 year if you are assuming the same rate in both periods. The total inflation over 10 years is 1.0237^10, 1.2639 or 26.39% and in 20 years it would be 1.5975 or 59.75%.
To the answer to your actual question has already been answered by others; wages do rise with inflation, it just tends to lag behind slightly.
[https://www.epi.org/nominal-wage-tracker/?gclid=Cj0KCQjwoK2mBhDzARIsADGbjepL2x5889A43ffDzp_UVRsCHrUObvR2F68_cDCzH8cnfe0-nXl0DVYaAvlfEALw_wcB](https://www.epi.org/nominal-wage-tracker/?gclid=Cj0KCQjwoK2mBhDzARIsADGbjepL2x5889A43ffDzp_UVRsCHrUObvR2F68_cDCzH8cnfe0-nXl0DVYaAvlfEALw_wcB)
The tables here show the average year-on-year (y/y) hourly wage changes in the US. Since 2007 it has always been between 1.5% and 4.7% with two exceptions:
1. COVID (first full month April 2021, wage increase was 7.8% y/y)
2. “The Great Resignation” – amidst rampant inflation between November ’21 and September ’22 wage growth was not less than 5.1% y/y
Looking at your 10 year example, in January 2013 the average hourly wage in the US was 23.75, in January 2023 it was 33.02. This is a 39% cumulative growth or 3.35% compound annual growth (CAGR.)
The problem is this does not affect all industries or all workers evenly. Some employees in some industries may have gotten no increase while others got twice as much. There are far too many factors impacting this to list here, but it is not just a “1% vs the world” impact.
edit: corrected the inflation logic. Thank you u/lucidspoon for catching my quick mental error.
Latest Answers