Making more money is great, but it doesn’t mean much if you’re having a hard time making ends meet.
While wages are rising, the prices consumers have to pay for goods and services are rising faster, hitting a new 40-year high in February.
As a result, inflation-adjusted real average hourly wages fell 0.8% on the month, down 2.6% year-over-year, according to BLS data.
“Wages rose 5.1% year-over-year, lagging behind inflation,” said Mark Hamrick, senior economic analyst at Bankrate.com. “Indeed, rising prices overshadow the minds of consumers.”
When wages rise at a slower rate than inflation, wages don’t go that far at the grocery store and gas station, two areas of the budget that become particularly tight.
Household grocery bills rose 8.6% in the last 12 months, the biggest jump since April 1981, while overall energy costs, including gasoline, rose the most since July 1981, according to the US Department of Labor. of the year.
“It’s very difficult to completely avoid inflation,” said Yiming Ma, an assistant professor at Columbia University’s business school. “Certain types of expenses can be deferred, but everyone needs to eat and everyone needs to go to work.”
“People don’t buy basic food, gas or electricity because they love those things, they buy them because they need them,” Hamrick said.
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Research shows that these recent price spikes have already taken their toll.
Two-thirds of American workers say their wages are not enough to cover the rising cost of inflation, according to a Credit Karma report that polled more than 2,000 adults in February.
Of the adults who felt the impact of inflation over the past year, almost three-quarters, or 74%, said the price increase hurt them financially, according to a separate report from Bankrate.com.
Approximately 64% of the US population currently lives paycheck to paycheck, up from 61% at the end of last year and just under 65% in 2020, according to another LendingClub report.
How consumers adapt will be key in the coming months.
Mark Hamrick
Senior Economic Analyst at Bankrate
More people may be forced to cut their spending, find higher-paying jobs, or dig into their cash reserves, Hamrick said. “How consumers adapt will be key in the coming months.”
On the policy front, the Federal Reserve raised the federal funds rate this week to help curb soaring inflation and set the stage for further increases.
When the Fed raises rates, borrowing becomes more expensive, thereby reducing demand and possibly keeping prices down.
However, it will take a long time to see the effects of these incremental movements, Hamrick said. “As far as waiting for the Fed to do its job, that cavalry will be slow to arrive.”
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