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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.

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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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