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Americans see ‘most severe’ pay cut in 25 years due to inflation


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Americans are experiencing the biggest pay cut in decades in large part due to inflation, new data shows.

The Federal Reserve Bank of Dallas, one of several regional Fed banks around the country, released new wage and price data, and it isn’t good news for Americans.

“We find that a majority of employed workers’ real (inflation-adjusted) wages have failed to keep up with inflation in the past year,” the bank said. “For these workers, the median decline in real wages is a little more than 8.5 percent. Taken together, these outcomes appear to be the most severe faced by employed workers over the past 25 years.”

The Fed bank reported that more than half of Americans saw a decrease in wages in the last 12 months.

“How severe are the losses for workers experiencing negative real wage growth?” the group said. “For the 53.4 percent of such workers in second quarter 2022, the median decline (that is, half of the declines were larger and half smaller) in real wage growth was 8.6 percent. How does the severity of the real wage decline in second quarter 2022 compare with the declines over the last 25 years? The average median decline over the last 25 years is 6.5 percent, with real wage declines typically falling in the range of 5.7 to 6.8 percent…”

The bank pointed to the Consumer Price Index, which since President Joe Biden took office has elevated to the highest rate in four decades. The Bureau of Labor Statistic’s latest Consumer Price Index surpassed 8% in the previous 12 months.

Some expenses like groceries saw even larger increases.

“The food at home index rose 13.5 percent over the last 12 months, the largest 12-month increase since the period ending March 1979,” BLS said. “The index for other food at home rose 16.7 percent and the index for cereals and bakery products increased 16.4 percent over the year. The remaining major grocery store food groups posted increases ranging from 9.4 percent (fruits and vegetables) to 16.2 percent (dairy and related products).”

Those price increases have outpaced wage gains, meaning some workers who even got a raise this year still didn’t see a large enough increase to offset inflationary price hikes.

“While the past 25 years have witnessed episodes that show either a greater incidence or larger magnitude of real wage declines, the current time period is unparalleled in terms of the challenge employed workers face,” the Federal Reserve Bank of Dallas said.

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