Pay Raises Are Finally Beating Inflation
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What is the main topic discussed in this episode?
Here's your Money Briefing for Wednesday, July 19th.
I'm J.R. Whelan for The Wall Street Journal. Pay raises and Americans' weekly checks are finally winning the numbers game, as inflation has declined to less than half of what it was a year ago. But that doesn't necessarily mean it's time to celebrate.
Although inflation has cooled, we are still seeing higher prices for a lot of items. And when you think about where we've come from, although workers' wages are now outpacing inflation, workers have really had to digest these higher prices over the last two years.
We'll talk to Wall Street Journal economics reporter Amara Omoque after the break.
Listen at schwab.com slash washingtonwise.
What do June wage figures tell us about pay growth outpacing inflation?
Americans' hourly pay rose 4% in June compared to a year ago, and that puts wage growth ahead of inflation for the first time in two years. WSJ economics reporter Amara Amokwe joins us. So, Amara, this is definitely good news for people's wallets. What's been their experience since inflation took off a few years ago?
How have Americans’ wallets been affected by two years of high inflation?
So Americans have been experiencing higher prices for their everyday items. We really saw steep increases for those common things that we use every day and that we need every day, whether that be groceries, gas, rent. And that basically meant that Americans' purchasing power declined. And relative to what inflation was doing, we didn't see the increase in wage gains keep up over the last two years.
But how does current wage growth compare to before inflation took off, you know, before the pandemic?
Are real wages now back to pre‑pandemic trends or still lagging?
One of the economists I spoke to for my story pointed out that, yes, although we now have wages outpacing inflation for the first time in two years, really, when we look at what the trend was pre-pandemic, real wages, that is inflation-adjusted wages, are below that trend. So although people's paychecks are better keeping up with inflation right now, they're still not where they would have been had the pre-pandemic trend continued.
What do the current wage gains tell us about the state of the labor market?
So really, the labor market is on quite solid footing, and it's actually a lot stronger than many economists had expected, than the Federal Reserve had expected. And that is actually creating complications for the Federal Reserve because the Fed is on this campaign to lower inflation. They've been raising interest rates since last year. in an effort to cool the economy, to pump the brakes on the economy a little bit. And nobody really expected the labor market to be as strong as it has continued to be.
What does strong wage growth reveal about the current labor market?
In June, we saw over 200,000 jobs added. We see unemployment at a still very low rate. And we also see quite robust wage gains. What it says is that the labor market is still strong. It's still tight when we think about the number of available workers globally. compared with the number of job openings, you know, job openings still exceed the number of available workers. So in a lot of ways, we're seeing that employers are still looking for workers or holding on to the ones they have. So a very solid labor market still.
And we've seen inflation come down from near 10% down to 3%.
Why does cooling inflation not mean prices have stopped rising for consumers?
Although it's come down in the past year significantly, prices are still rising, right?
Yes. And that's a very important point to note. Although inflation has cooled, we are still seeing higher prices for a lot of items. And when you think about where we've come from, although workers' wages are now outpacing inflation, workers have really had to digest these higher prices over these last two years. And so it's not necessarily a cause to be overly optimistic or overly exuberant. It is good that people are feeling better, but you also have to remember that People have really been dealing with higher prices for a while now, and we still are seeing prices go up just at a slower pace.
How could sustained wage gains complicate the Fed’s efforts to avoid recession?
And also, there are some items for which prices are still going up. So the cool down in inflation hasn't been even across the board.
Do economists feel that this wages versus inflation trend is likely to continue?
So when I asked economists about what to expect going forward, what I essentially heard was that as inflation comes down, we should see the increase in wage gains also slow down.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:00–1:38
2
What do June wage figures tell us about pay growth outpacing inflation?
1:38–1:57
3
How have Americans’ wallets been affected by two years of high inflation?
1:57–2:29
4
Are real wages now back to pre‑pandemic trends or still lagging?
2:29–3:27
5
What does strong wage growth reveal about the current labor market?
3:27–4:03
6
Why does cooling inflation not mean prices have stopped rising for consumers?
4:03–4:43
7
How could sustained wage gains complicate the Fed’s efforts to avoid recession?
4:43–7:18
Speakers
3 identifiedMore from WSJ Your Money Briefing
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