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Inflation and Wages: 2016-2024

Inflation and Wages: 2016-2024

What do experts tell us about the economy, inflation and wages?

“The first rule of economics is scarcity.  The first rule of politics is to ignore the first rule of economics.”

-Thomas Sowell

Which is the classic and best understood definition of inflation?

  1. The description of how big a fish that you caught the last time you were out
  2. What it takes to make your exercise bike into an electric bike
  3. Too many dollars chasing too few goods and services

So yes, there could also have been answer D) All of the above, but let’s focus on answer C.


Undoubtedly inflation in the US and globally has proven to be more than transitory.  But what is reported as headlines, such as “Inflation Creeps up 0.5% in December” is pretty deceiving in my view.  Let’s look at an example.

First, let’s confirm a fact.  What does it actually mean when we are told that the inflation went up 7%?  It means that compared to the same month one year ago, the cost of goods and services has increased by that percent – let’s stay with 7% as the example.  But what if we’re already 36 months into this economic turmoil?  The numbers for the US:

November 2021: 6.8% – – – – November 2022: 7.1% – – – – November 2023: 3.1%

Do you get it now?  Here in 2022’s case, inflation is 7.1% SINCE NOVEMBER 2021.  I can’t tell you a calculation for additive or compounded, but I can tell you we’re being deceived if we believe that November 2022 is only 0.3% more than November 2020.

Look at the graph below…  Still one of my faves. I like graphs and charts that tell a story.  I found the one below on-line, it’s from the St. Louis Federal Reserve Bank.  It charts the reduction in purchasing power by month since January 2016 and through January 2024, an eight-year period. Going back further than 2016, the line has continually trended downwards, since the Index is set at 1982-84 = 100%. So to interpret, 2016 to 2020 purchasing power fell ~3%, and 2020 to 2024 purchasing power fell ~7%.

inflation and wages

What About Wages?

Without showing the graph here (trust me) during the same periods, wages rose 12.9% 2016-2020 and 17.9% 2020-2014. So one side of the aisle would say, “People are better off since 2020 — increase in wages over the previous 4 year period of 7%!” Others will say that wages rose 7% less prior to 2020. So the net effect of compounded inflation since 2020 more than wipes out that seemingly positive spin. Let’s return to those November numbers with an example, say a loaf of bread that in November 2020 cost $4.00:

November 2021: $4.00 x 1.068 = $4.27 – – – – November 2022: $4.27 x 1.071 = $4.57 – – – – November 2023: $4.57 x 1.031 = $4.71

So… in pocketbook/wallet terms, $4.71 is $17.8% more than $4.00. While wage inflation has managed to match that in this example for $4.00 bread, we can’t say the same for rent, childcare, education, and the list goes on.

Now what?

It looks like a “soft-landing” is in store based on most recent trends (see Thomas Sowell quote above). Companies seem to be a little more conservative on salary increase budgets heading into 2024. But we are seeing more aggressive organized labor demands to make up for lost purchasing power. Let’s look back again in a year or so and see if any of this posturing on the numbers that affect real people and their purchasing power looks any better.


Jim Harvey is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 40 years of experience in corporate leadership roles and consulting, and lives with his wife and four dogs in Sherwood, OR.

To read other blogs, go here:, especially Follow the Leader and Think Outside the Box. Our services associated with understanding the market and creating salary planning strategies include Employee Pay Planning ToolsSalary Structures and Market Review.

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