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Purchasing power of workers down

Inflation for workers still at 40-year highs
By Masao Suzuki |
October 22, 2022
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San José, CA - Inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers or CPI-W has been rising this year at the fastest rate in 40 years. This high inflation continued in September, with prices measured by CPI-W up 8.5% over a year ago. Higher prices combined with fewer hours means that the purchasing power of average weekly earnings for workers fell 3.5% from a year earlier.

But many workers’ wages are buying even less than the 3.5% average drop in purchasing power. The difference in hourly pay gains between the highest-paid 25% of all workers, and the lowest paid 25% of workers is the widest on records going back 25 years. While the highest paid workers saw their wages rising on average 7.3% in the last year, the lowest paid workers only saw a 4.3% increase. This means that for lower-income workers, the purchasing power of their paychecks has fallen about 5% from 2021.

Inflation was led by rising energy costs, up almost 20% from a year ago, and food, up more than 11% from a year ago. More people are falling behind on their utility bills and most people are cutting back or trading down on their food purchases.

Prices not counting food and energy were up 6.6%. While this was less than the overall increase in prices, it was also the biggest increase in 40 years. Inflation fighters at the Federal Reserve, the country’s central bank, are more concerned as inflation excluding energy and food is much harder to push down. Most economists are expecting the Fed to raise interest rates by another three-quarters of a percent at both their November and December meetings. This would raise short-term interest rates from just over 3% now to more than 4.5% by next year.

Longer-term interest rates, such as on mortgages, have been increasing even faster as the standard 30-year mortgage interest rate is now 7% or more, the highest in 20 years. This makes buying a house that much more expensive. Credit card interest rates are also rising, adding the costs of household who carry credit card debt.

The only silver lining to the inflation cloud is that Social Security benefits will rise 8.7% in 2023. This is because Social Security benefits are “indexed” or automatically adjusted for inflation using the CPI-W. In addition, there will be a very small drop in the Medicare Part B monthly premium, instead of a usual increase. 

But Social Security and Medicare will be under threat if the Republicans win in the November midterm elections, as many Republicans in Congress and candidates are calling for cuts or even ending these essential programs for seniors and the disabled.

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