Economic Snapshot | Wages, Incomes, and Wealth

Inflation trumps wage gains again in July

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Snapshot for August 17, 2005.

Inflation trumps wage gains again in July

A few weeks ago we learned that hourly wages of blue-collar, non-managerial workers rose 0.4% in July, the fastest monthly growth rate in a year.  Today we learned from the new consumer price index (CPI) report that inflation gobbled up that increase and more, causing both the real hourly and weekly wage to fall slightly in July ( Acrobat (PDF)

The CPI, driven by higher gas prices, rose 0.5% last month, slightly surpassing July’s hourly and weekly pay gains (the deflator used by BLS for the earnings report-CPI-W-rose slightly faster than the more commonly cited CPI-U rate of 0.6%).  Over the past year, according to the BLS, both measures of inflation-adjusted earnings fell by 0.5%.  In fact, real hourly earnings fell in all but two out of the last 15 months (see chart below).

Annual change in real hourly wages, January 2003-July 2005

Note also that the so-called “core” rate of inflation (which excludes food and energy) grew only 0.1% in July and has ranged from 0.0% to 0.1% since last April.  This stability reveals the conspicuous absence of any wage-push inflation resulting from the tightening of the job market, a concern raised by many inflation watchers. 

The lack of wage pressure in tandem with faster inflation from other sources has led to a uniquely unbalanced outcome: the real hourly wages of these workers remain at almost the exact same level as when the current recovery began in November 2001. In July 2005 dollars, the wage was $16.15 in November 2001 but only $16.13 last month. 

So even with the productivity of the workforce up 12% since the recovery began in November 2001, the real hourly wage-the building block of living standards for most of that workforce-has not budged.  This reality should leave no doubt that this much-vaunted recovery continues to leave large swaths of working families behind.

This week’ Snapshot was written by EPI economist Jared Bernstein.

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