The Bureau of Labor Statistics (BLS) for August reported the inflation rate was at an annualized rate of 8.3%. This figure was down from the 8.5% mark recorded in July and the 9.1% inflation rate in June, which amounted to the biggest increase in four decades. The BLS of August reports the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent on a seasonally adjusted basis after being unchanged in July 2022.
Increases in shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all items increase. These increases were mostly offset by a 10.6-percent decline in the gasoline index. The food index continued to rise, increasing 0.8 percent over the month as the food at home index rose 0.7 percent. The energy index fell 5.0 percent over the month as the gasoline index declined, but the electricity and natural gas indexes increased. Overall, all items index increased 8.3 percent for the 12 months ending August, a smaller figure than the 8.5 percent for the period ending July 2022 (BLS of August 2022).
On the flip side, the Federal Reserve Bank of Atlanta, through use of Bureau of Labor statistics data covering wage growth, has developed a Wage Growth Tracking algorithm to measure overall wage growth data in the United States. Since January 2022, the overall wage growth for the year has increased from 3.8% (January 2022) to 6.7% reported in (August 2022). Data from The Atlanta Fed's Wage Growth Tracker can be found here: https://www.atlantafed.org/chcs/wage-growth-tracker
Wage Growth Tracker
As noted in the Wage Growth tracker, Hourly wage earnings is running 6.7%. This indicates there has been significant movement by employers to adjust somewhat for the talent war, cost of living, and recent inflation rates. It also emphasizes that it has been a sellers’ market when finding a job and getting paid for it. Strategically looking at a pay budget from 5% to 7% for pay increases, adjustments, and promotions, etc. for 2023, to competitively position the company in response to the external environment really comes back to cost, intended strategy, and investing in your employees to engage them in your business.
You now may be asking yourself, what numbers should our company be considering making decisions on pay increases for 2023? A faithful compass or barometer that should be considered to make pay increase decisions for 2023 is tracking the wage growth indicator as provided by the Federal Reserve Bank of Atlanta, and to research via the internet / survey sources what pay increase projections other companies are forecasting across the country.
Employees across the country are feeling the effects of inflation and the pinch in Cost of Living - food costs, healthcare, electricity, new cars, natural gas, housing, utilities, entertainment, etc. For example, 4-6 months ago there was a lot of discussion of providing a gas stipend to employees to offset the high cost of gasoline that did not appear to be changing anytime soon.
Today, gasoline prices at the pump are now down over 10.6% as the gasoline index continues to decline. Similarly, the high costs for housing and rent appear to be abating somewhat as the prime rate is increased by the Fed which affects the cost of money which leads to driving up interest rates.
Wage-Price Spiral and Inflation
Caroline Banton for Investopedia founded the concept of Wage-Price Spiral and Inflation, stating “the wage-price spiral is an economic term that describes the phenomenon of price increases because of higher wages. When workers receive a wage hike, they demand more goods and services and this, in turn, causes prices to rise. The wage increase effectively increases general business expenses that are passed on to the consumer as higher prices. It is essentially a perpetual loop or cycle of consistent price increases. The wage-price spiral reflects the causes and consequences of inflation”. Banton refers to this thought process as a characteristic of Keynesian economic theory.
Company Culture is Key
Valuing company culture, such as recognizing and incentivizing employees, will aid in attracting, retaining, and encouraging talent to weather outside environmental conditions along with ensuring you are fair and equitable with your pay. Providing a workspace where employees feel valued and find themselves in line with the company’s mission will result in further building of trust and long-standing employment. On another note, if part of your compensation / total rewards strategy includes participating in a competitive market for talent to attract and retain a high performing workforce, you might consider refreshing your pay data on at least an annual basis. For more information about compensation strategies in a time of inflation and the importance of culture in retaining employees, tune in to this Good morning, HR podcast hosted by HR entrepreneur Mike Coffey, SPHR, SHRM-SCP.
Bob Cartwright, SPHR / SHRM-SCP
President / CEO of Intelligent Compensation, LLC