Cheryl Cason of FOX Business breaks the consumer price index for May.
The hot labor market is fueling rapid wage growth for millions of Americans, however the worst inflation in four decades quickly erodes these profits.
The Ministry of Labor announced on Friday that the average hourly wage for all employees actually fell by 3% in May compared to the same month a year ago, taking into account the impact of rising consumer prices.
On a monthly basis, the average hourly wage fell by 0.6% last month, taking into account the jump in inflation.
By this measure, the typical American worker is actually in a worse position today than a year ago, although nominal wages have been rising at the fastest pace in years.
PERIOD OF INFLATION: MAPPING THE REPLY OF THE ADMINISTRATOR OF BIDEN TO THE RAPID GROWTH OF PRICES
This is because consumers face the highest inflation in a generation, which is rapidly reducing their purchasing power.
“Although wages are rising fast, inflation is rising much faster, so workers are actually losing ground,” said Dan North, a senior economist at Allianz Trade North America. “In practice, they receive a reduction in wages, and this can certainly make it difficult for the economy.
Businesses are eager to hire new employees and raise wages to attract workers as they face labor shortages. At the end of April, there were about 11.4 million job openings – close to a record high – while the number of Americans leaving their jobs also climbed to a new peak.
An employee packs dried peppers for a customer at the Grand Central Market, March 11, 2022, in downtown Los Angeles. (Patrick T. Fallon / AFP via Getty Images) / Getty Images)
As a result, workers see the biggest pay gains in years, as companies compete for a limited number of employees. Profits rose 5.2% in May from a year earlier, the labor ministry said last week, well above the pre-pandemic average of 3%.
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The combination of high inflation and rising wages raises concerns about the possibility of a spiral in wages and prices, a phenomenon from the 1970s in which high inflation led to wage increases, which in turn led to more costs and more expensive prices.
A man shopping at a Safeway grocery store in Annapolis, Maryland, May 16, 2022 (Jim Watson / AFP via Getty Images / Getty Images)
Hot inflation has created severe financial pressure for most US households, which are forced to pay more for daily needs such as food, petrol and rent. The burden is disproportionately borne by low-income Americans, whose already stretched wages are heavily affected by price fluctuations.
“Today’s report highlights why I have made fighting inflation my top economic priority,” President Biden said in a statement on Friday, again blaming Russian President Vladimir Putin and the war in Ukraine for rising prices. “Even as we continue to work to protect freedom in Ukraine, we need to do more – and quickly – to bring prices down here in the United States.
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