Everything You Need to Know About the Impact of Inflation on Wages
Does it seem like everything is getting more expensive?
From a cup of coffee to a new car, prices seem to be going up and up. But why is this happening? Are companies getting greedier, or is the cost of running a business just too expensive these days?
The short answer is that it’s related to inflation. It’s a term that is often reserved for the financial and political section of the news, but it’s something that affects everyone. So what does it mean, and how does it impact wages? Here’s what you need to know.
What is Inflation?
In simple terms, inflation is defined as the decrease in purchasing power of currency and coincides with the rise of prices for goods and services. The increase in the costs for these items is represented as a percentage and means that the currency now buys less than it did previously. Prices are generally tracked over one-year intervals.
What Causes Inflation?
Many things can cause inflation, but it’s mainly related to supply and demand. If more products are produced than people need, inflation will go up because of an increase in supply, which makes prices go down. But inflation will also go up if there are fewer products than people want, which results in an increase in demand and prices going up.
What Is the Inflation Rate Today?
The annual inflation rate finished at 5.3% in August of this year. That’s higher than it’s been since the 2008 recession. Since January, it has been steadily on the rise, but it’s projected to level off at around 5% by the end of 2021.
The inflation rate will likely continue to go up because of increased taxes and continuing economic growth. There’s also a possibility that it could be back up in the double digits again soon.
What Does Inflation Mean for Wages?
While inflation has no direct impact on wages, it does affect the number of available jobs. Employers struggle to afford to keep as many people employed during inflation because the cost of doing business has increased. This is due to the increased prices for goods and services that companies rely on. As those costs continue to go up, so does the inflation rate.
It also means that employees may end up making less money and face layoffs or a decrease in hours even if the business is performing well. It can impact everyone, from those just starting their careers to others who have been in the workforce for years. If the inflation rate continues to increase but wage growth plateaus, it forces employees to start looking for a job elsewhere that pays a higher salary.