As ‘Inflation Wipes Out Real Gains,’ How Much of a Raise Will You Need in 2022 To Keep Up?

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With inflation hovering around 6% for the last several months — a 30-year high — October’s Consumer Price Index showed that prices across all major categories are continuing to crawl upwards. Although pay increases are returning to pre-pandemic levels, rising prices could mean that higher salaries won’t be able to compete with inflation in 2022.

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For the past 10 years, the median total U.S. salary increase budgets have been 3%. Projections for 2022 are also 3%, The Conference Board said in June.

The Society for Human Resource Management (SHRM) reported that Judy Shelton, an economist and senior fellow at the Independent Institute, wrote in a July 25 Wall Street Journal column that “nominal wage gains are an illusion when inflation wipes out real gains.” Last year’s inflation rate was 1.7%, Shelton noted, and the federal government reported a year-over-year inflation rate of 5.4%.

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SHRM pointed out that an average 3% base pay increase would result in a decrease in purchasing power for employees. Between June 2020 and June 2021, inflation resulted in a nearly 2% pay cut despite hikes in hourly wages.

More employers are planning on wage and salary increases to attract and retain workers. CNN reported that some HR consulting firms are seeing employers offer compensation increases of 5% to 10%, especially in areas where workers are needed the most. That increase has gone up to 20% in some cases.

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However, this hasn’t been across the board, nor is it guaranteed to continue. CNN added that increasing base pay is a permanent increase in an employers’ fixed costs and they may not want to raise salaries in line with historically high inflation, especially when it’s expected to cool down next year.

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About the Author

Josephine Nesbit is a freelance writer specializing in real estate and personal finance. She grew up in New England but is now based out of Ohio where she attended The Ohio State University and lives with her two toddlers and fiancé. Her work has appeared in print and online publications such as Fox Business and Scotsman Guide.

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