More than 80 percent of Americans are concerned about inflation, according to a survey by Skynova. The survey also indicated that 61 percent feel inflation will negatively impact their lifestyles. The findings coincide with rising costs for some goods and services, and a sense of uncertainty stemming from an economy recently hit with a pandemic.
If you’ve noticed prices have gone up in your area, you may also be looking at pay deposits or checks to see if your income has fluctuated. “In economic theory, as prices rise, wages should be rising with them,” David Frederick, director of client success and advice at First Bank Wealth Management in the St. Louis, Missouri, area, told The Epoch Times. “However, this relationship between inflation and wages is not automatic and just because inflation is rising does not mean that a boss is going to offer his or her employees automatic raises.”
Even when wages increase, the overall impact can vary.
“If workers push for higher wages, this increases operating costs for companies,” David Peters, a financial adviser and owner of David Peters Financial Group in Richmond, Virginia, told The Epoch Times.
To cover the higher expenses, companies often charge more for their products and services. This can continue in a cycle, as workers may see the rise in prices and ask again for a wage increase.
Though every inflationary period tends to be unique, it can be valuable to compare your current paycheck with rising inflation rates. The process may provide insight, spur you to action, and enable you to create a financial roadmap for upcoming economic shifts.
Adjusting to Higher Levels of Inflation
If you’ve been with the same employer for months or years, and haven’t had a significant pay increase, it could be concerning to see living expenses move upward. You might find it harder to maintain your current lifestyle with the same set of dollars coming in each month. To tighten the budget, there may be areas where costs can be reduced, such as eating out less often or foregoing entertainment-related expenses. If you’re paying off a home loan, consider the interest rate you have and explore options to reduce it.
“The time to refinance the mortgage is now,” Frederick said. “Mortgage rates are still amazingly low, even as inflation rises. Sooner or later, whether by the action of the Fed or by effects of the market, the mortgage rates will likely have to rise.” If you can lock in at a low rate before rates rise, you could save in future years as you pay off the mortgage.
Seeing inflation rates increase could also be a motivating factor to seek higher levels of income. “Employees who want to actively and aggressively protect their finances may find benefit in shopping the job market, looking for new positions, and leveraging new offers to get pay raises from current employers,” Frederick said. If you see a job opening in your area of specialty, the hiring company may be willing to pay a premium or offer a signing bonus if they are looking to fill the position quickly or are struggling to find workers.
When Wages Increase
There is no exact formula for how wages will rise since a pay increase depends on many factors. Some industries tend to experience higher wages when inflation rates escalate. “Real estate is generally positively affected by inflation because rent is higher during higher inflation times and costs are often fixed,” Peters said. “Insurance may see more revenues from looser underwriting standards and increased investment income.” Companies focused on commodities often have higher revenues during inflationary times, but if their expenses also increase, there may not be much net impact.
A study by AdvisorSmith indicated that between 2019 and 2021, the sectors with the highest wage increase included business services, retail, and medical services. These were followed by automotive retail and services, construction, and home services.
The industries topping the list had workers see an average hourly wage increase of slightly above 25 percent during the two-year period.
If your salary does increase, a good review of current inflation levels and forecasts of what lies ahead may help direct financial decisions. “Many people took withdrawals from retirement accounts during COVID,” Peters said. If you took out of long-term accounts and now have extra funds, it could work to pay back the amount withdrawn. “It is also a good time to replenish emergency accounts.”
In addition, it can be worthwhile to evaluate savings and retirement plans. “If your wages increase, be sure to increase the amount of money you save and invest every month,” Gregory Rozdeba, founder of Dundas Life, told The Epoch Times. You might consider options such as stocks, real estate, mutual funds, and other assets to create a diversified portfolio.