Over the past year, average hourly wages for American workers have risen by roughly 2.7 percent, according to the latest jobs report from the Bureau of Labor Statistics. Pay has been rising pretty steadily at this pace since roughly last July—which would seem like a definite improvement from the days of 2013 and 2014 when wage growth hovered around 2 percent.
But take a look at what happens when you adjust for inflation. In February, the most recent month for which we have consumer price index data, wages basically didn’t rise at all (technically, they budged up 0.00195 percent, but let’s not quibble). For a long while, pay edged up slowly, but rock-bottom inflation meant workers were still seeing their compensation increase in real terms. Now, rising prices seem to be eating up raises entirely.
This isn’t necessarily something to get alarmed about. First, we’re talking about a very brief trend. Second, economists have spent years waiting and hoping for higher inflation, which among other things might encourage more aggressive investment, lighten old debt loads, and allow the Federal Reserve to normalize interest rates.
But you also don’t want people’s real pay to fall. In an ideal world, wages would always stay a few ticks ahead of prices—otherwise people will feel their standard of living start to fall or stagnate.
Right now, inflation is being driven partly—though not entirely—by rebounding oil prices. Take out food and energy from the mix, and year-over-year prices rose 2.2 percent in February, rather than 2.7 percent with the cost of gas and groceries included. So maybe we’ll get to a better balance once prices at the pump are less of a factor. Either way, it bears watching.
