Americans battered by soaring inflation since President Biden took office have effectively suffered the steepest pay cut in a quarter-century, according to data released by the Federal Reserve.
Researchers for the Federal Reserve Bank of Dallas published new findings that calculated “real wages” — the effective income of workers when adjusted for inflation.
“We find that a majority of employed workers’ real (inflation-adjusted) wages have failed to keep up with inflation in the past year,” the researchers said. “For these workers, the median decline in real wages is a little more than 8.5%.”
“Taken together, these outcomes appear to be the most severe faced by employed workers over the past 25 years,” the researchers added.
Higher inflation can quickly erode the purchasing power of Americans if wage growth doesn’t match the increases. That means households face a difficult financial crunch when attempting to pay for daily necessities such as food, rent and gas.
In the span of just one decade, an inflation rate of 3% would reduce the purchasing power of $100 by 25%, according to calculations by investment management firm PIMCO.
The effects are most crippling for lower-income earners.
“A loss of a dollar of real wages means more to someone earning $10 than $25 an hour,” Joseph Tracy, one of the study’s authors and former executive vice president at the Dallas Fed, told The Post
In the nearly two years since Biden entered the White House, inflation has surged by more than 13%, according to economist Peter C. Earle of the American Institute for Economic Research.
The Dallas Fed’s study shows there are “no free lunches” after federal policymakers took a lax stance on fiscal policy during the COVID-19 pandemic, Earle told The Post.
“The bill for the Covid mitigation policies is due,” Earle said. “Record levels of fiscal and monetary policy expansion in the first half of 2020 are wrecking the purchasing power of the dollar. Thus even without a pay cut, wage earners are effectively earning less over time.”
Roughly three out of every five Americans was living paycheck to paycheck as of August while grappling with decades-high inflation, according to a survey conducted by LendingClub Corporation.
A whopping 62% of consumers earning between $50,000 and $100,000 are living paycheck to paycheck, compared to 45% earning more than $100,000.
The Consumer Price Index — a measure of the average in the prices for consumer goods and services — has soared 8.6% from the second quarter of last year to the same period this year.
More than half of American workers — 53.4% — saw an effective decrease in wages in the last year, according to the Dallas Fed.
“For the 53.4% of such workers in second quarter 2022, the median decline (that is, half of the declines were larger and half smaller) in real wage growth was 8.6%,” the study said.
Over the last 25 years, the average median decline is 6.5% while real wage declines typically dipped between 5.7% and 6.8%, according to the Dallas Fed.
Core inflation, which excludes volatile food and energy prices, increased by approximately 10% over the same period.
Last week, the Commerce Department released data showing that core consumer prices increased by 6.2% in August compared to the same month one year ago.
The core PCE, which excludes volatile food and energy prices, increased by a hotter-than-expected 4.9% year-over-year in August, or by 0.6% compared to July.
The Bureau of Labor Statistics released data last month indicating that inflation rose 8.3% in August compared with the same period last year.