Adding more pressure on employers to raise wages, consumer prices rose 8.5 percent year over year in March, the highest inflation rate since 1981, the U.S. Bureau of Labor Statistics (BLS) reported on April 12. The monthly increase from February to March was 1.2 percent.
The latest figures show that inflation continues to escalate. The consumer price index (CPI) had risen 7.9 percent in February from a year earlier and was up 7.5 percent in January year over year.
Higher inflation means the buying power of workers' take-home pay is shrinking. Real (inflation-adjusted) average hourly earnings fell 2.7 percent, seasonally adjusted, from March 2021 to March 2022, the BLS separately reported on April 12.
"Gas prices alone accounted for more than half of the monthly increase in the CPI, rising 18.3 percent in March, and over the past year gas prices are up 48 percent," tweeted Bankrate.com Chief Financial Analyst Greg McBrid. "Food prices also [saw] a big increase, with food-at-home costs rising 1.5 percent just in the past month, further squeezing household budgets."
However, "even core prices that exclude food and energy are up 6.5 percent over the past year, the fastest since Aug. '82," he also tweeted.
The White House said the war in Ukraine and the continuing effects of supply chain disruptions were responsible for the price surge, while others point to increased government spending and its effect on the money supply. Economists differ on whether inflation will continue to rise or begin to recede.
An indication that inflation is likely to remain high, however, was provided by the producer price index (PPI), a key leading indicator for the prices that consumers eventually pay. On April 13, the BLS announced that the PPI rose 11.2 percent for the 12 months ended in March, up from a 10 percent annual increase in February and a 9.7 percent year-over-year increase in January.
Pay Expectations Are Rising
Most U.S. organizations are planning a payroll budget increase of 4 percent or more this year, and a plurality of organizations are growing their salary merit-increase budgets by 5 percent or more, new research shows.
Those adjustments, unless revised, will now further trail inflation.
Hourly wages have been rising faster than salaries, with annual wage growth reaching 6 percent in March, according to the Federal Reserve Bank of Atlanta's wage tracker.
As inflation keeps rising, however, so do employees' expectations for higher wage and salary increases.
A survey of 5,000 U.S. workers conducted earlier this year by Grant Thornton LLP, an audit, tax and advisory firm, found that among the respondents:
40 percent expect pay increases of greater than 6 percent this year.
31 percent expect more than 8 percent.
21 percent anticipate receiving more than 10 percent.
The firm said in its April State of Work in America survey report that the top reasons workers took a new job were higher base pay, improved work/life balance, greater opportunities for advancement, better benefits and increased autonomy.
Regarding pay, 40 percent of workers said they left their job for a company that offered them a raise of 10 percent or greater. Within that group, 13 percent said they received a salary increase of 20 percent or more.
"American workers have found their voice during the pandemic, and they are perhaps keener than ever to ask for what they want—or find it elsewhere," said Tim Glowa, a principal and leader of Grant Thornton's employee listening and human capital services offerings.
Workers Requesting Bigger Raises
A survey of more than 1,000 U.S. workers conducted March 3-11 by staffing firm Robert Half found that:
One-third (34 percent) said they have not had a raise in 12 months.
Another 16 percent had received a raise but were disappointed with the amount.
Nearly two-thirds (62 percent) of surveyed workers plan to ask for a raise this year, with the top reasons being:
To adjust for the higher cost of living (30 percent).
To reflect current market rates (23 percent).
To account for additional job responsibilities (22 percent).
If workers don't get a raise:
31 percent will ask to revisit the salary conversation in a few months.
27 percent will look for a new job with higher pay.
23 percent will ask for more perks.
"In addition to setting competitive salaries, companies must consider the entire employee experience and deliver programs that satisfy their professional and personal needs," said Paul McDonald, senior executive director at Robert Half. "Career advancement and remote options are two big priorities for workers today."
Pay Compression Worsens
As salary offered to new hires increases to compete for talent, pay compression is worsening, according to another Robert Half survey, with responses from 376 C-suite executives received from Feb. 25 to March 8.
Fifty-six percent of U.S. companies have experienced pay compression in the last 12 months, the firm reported. Of those, 62 percent are increasing salaries for current staff to help close wage gaps.
In addition:
More than half of C-suite executives surveyed (56 percent) said they have observed salary discrepancies between new hires and more tenured staff in the past year.
Of those, 62 percent are regularly reviewing compensation plans and increasing salaries for existing employees, when appropriate, to align with current market rates.
"Market conditions have shifted dramatically, and savvy employers are stepping up to address salary gaps and ensure all employees are being paid fairly," McDonald said. "They know that taking a cautious 'wait-and-see' approach on compensation is risky and can lead to the loss of great talent."