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Your Spendable Income Versus Inflation

Income Versus Inflation

You’ve likely noticed that your spendable income doesn’t go as far as it did mere months ago. By December, inflation had surged at the fastest annual rate since 1982. The average price of goods and services rose 7% from the year before. But that was the average. Gas rose nearly 50%, energy services including electricity and piped gas were up more than 10%, and the price of used cars and trucks went up more than 37%.

If you were one of the many who received a pay increase during that same amount of time, your joy might have been tempered quickly by the realization that inflation rose faster than your income. Worker pay increased about 4% last year, the fastest rate in two decades. That’s great news, but as you may have noticed, there’s a giant chasm between a 7% rise in prices and a 4% raise (if you’re lucky) when it comes to spendable income. Why?

“Wages are what economists call ‘sticky,’ meaning they don’t change as fast as other prices do,” Judge Glock, director of policy and research at the Cicero Institute, wrote as an opinion piece in the Wall Street Journal. “When inflation comes along, gasoline stations can switch their price signs in an hour and restaurants can adjust their menus in a day, but most employees get a salary bump only once a year.” 

Don’t assume employers are simply being greedy. A net 50% of small business owners raised compensation in January—a 48-year record, says the National Federation of Independent Business (NFIB). Another 27% plan to raise compensation in the next three months. Many employers understand how crucial pay is for recruitment and retention, especially during the current labor shortage. But large employers and small businesses alike can’t simply raise wages overnight. “They need to calibrate an increase in compensation — usually a company’s biggest expense — without slowing profit growth,” explains CFO Dive’s Jim Tyson.

What can you do to increase your paycheck while inflation affects your spendable income?

  1. Be sure your compensation is at least on par. Do you have any idea if your current pay is within the average range? If it’s not, you have more reason to re-negotiate than most. Use tools like Glassdoor’s Know Your Worth™ calculator or websites like, or Payscale.comto get an idea of what others in your position are making. Revisit our recent blog post on negotiating salary and perks for inspiration on proceeding from there. If your employer doesn’t budge from an unrealistic rate, it may be time to find a new employer. But hear them out: Their hands may be tied right now, but they may be able to offer you other perks or give you a timeline to get you where you need to be.
  2. Review what’s coming out of your paycheck. Nearly half of all U.S. taxpayers have no idea when they last updated their withholding. Do you? Withholding tables changed in the past few years, and W-4 forms were updated. Your own life changes may have also affected how much of your paycheck is set aside for taxes, too (marriage, divorce, kids, etc.). While it can feel great to receive a tax refund (when it finally comes – they’re delayed more and more these days), you may want to receive a bigger paycheck (i.e., more spendable income) each pay period instead. For that same reason, it’s essential to annually review other paycheck adjustments, including health insurance premiums and 401k contributions.
  3. Be realistically patient. As the Federal Reserve prepares to raise interest rates (in an attempt to curb rising prices), many economists predict inflation will soon peak. Jason Furman, an economics professor at Harvard University, is one such expert. He expects inflation to moderate in 2022 while—and here’s the great news—wage increases remain strong. “I expect workers to make gains—real, genuine gains—this year,” he told CNN. Likewise, SHRM reports compensation could trend up 3.6% in 2022 and 4% in 2023. So while wages are ‘sticky’ and slow-moving, indications show they’ll continue to trend upward as inflation slows down.

“So, while you can expect pay to rise, don’t expect it to match wild fluctuations and inflation dollar-for-dollar,” says The HT Group’s CEO/Founder Mark Turpin. “Workers are in a powerful position right now, but you also need to be realistic.”

Inflation comes and goes, and, as it does, your spendable income will be affected. While wage increases are incremental and subtle, they lead to more reliable gains. If you find that your spendable income isn’t enough even as inflation settles back down, take the steps above and contact us to find a job that better matches your needs.