What is the impact of inflation on wages?

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Inflation is a topic that's been on everyone's lips recently, especially with the official numbers in the United States indicating an 8.3 percent increase in August 2022. Naturally, this leads to questions about whether wages and salaries are keeping pace with the rising prices. Unfortunately, the short answer is no. According to the Bureau of Labor Statistics, real average hourly earnings dropped by 2.8 percent in August, year over year. This doesn't mean that wages have decreased, but rather that they haven't increased as quickly as prices have. This discrepancy can be attributed to two main factors. Firstly, prices and wages change at different rates. Prices can be adjusted daily, while wages are typically adjusted once or twice a year, leading to a lag effect. Secondly, wages are rigid, meaning companies are hesitant to make significant adjustments to wages at any one time. This further contributes to wages not rising as quickly as prices. This information comes from Adam Nash, CEO and co-founder of Daffy, a not-for-profit community built around a modern platform for giving. Nash, who has a wealth of experience in finance and has taught “Personal Finance for Engineers” at Stanford, is a reliable source for insights on economic trends and their impact on personal finance. In these uncertain times, it's more important than ever to make smart financial decisions. Daffy, the Donor Advised Fund for You™, can help you do just that. With Daffy, you can easily donate to almost every US public charity, track tax-deductible contributions, and access donation receipts all in one place. Plus, Daffy waives all membership fees for members with less than $100 in their fund. So why not simplify your giving and try Daffy for free today?

Please note that the information contained on this page is for educational purposes only and should not be considered tax advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific tax situation, please consult with a tax professional.

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