THE QUESTION:

What Percent of Current Inflation is Justified?

Does the Rise in Production Costs

Justify Price Hikes by Companies?

Summary Cost Categories LABOR

MANUFACTURE / OPERATIONS

As we can see from the graph, while businesses experienced significant inflation in terms of raw materials and operations costs, employment costs for the same period have consistently lagged behind.

The graph above was made using the BLS figures for October 2022. As opposed to 7.7% inflation for consumers, producer prices inflation was up by 8% where as the rise of employment costs was seen by 5%. The BLS excludes the agriculture industry from these figures. All other occupations are covered in their employment costs estimates, inclusive of both public and private sectors.

On the surface, it seems employers have responded positively to the demand in salaries and benefits increase by the USA’s labor force. However, the raises still lag behind the extent to which prices have been going up for consumers.

This picture changes completely as soon as you hold the dollar value constant.

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The Bureau measures employment costs in two ways: Using monthly reported salary figures; and, by holding the dollar value constant by taking account of the rising consumer prices. When you plot the graph of salary increases over the last ten years using both current dollar values and constant dollar values (those adjusted for inflation), salaries are not growing at all. See next page.

This BLS graph charts real earnings (inflation adjusted), in the light blue line, against apparent earnings (dark blue line.

It is clear that the consumer prices inflation is not fully justified b y the full picture of production costs as salaries have lagged far, far behind the price increases.

The change in salaries in costant dollar value between March 2021-2022 is a 3% decrease. That is, workers experiened a 3% paycut in terms of purchase power of their wages

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