If you don’t get a 6% raise, are you taking a pay cut due to inflation? Here’s what experts say

Personal Finance

A worker helps a customer at the Presidente Supermarket in Miami on April 13, 2020.
Joe Raedle | Getty Images

Workers across the U.S. are wondering how rising inflation might be impacting their take-home pay.

Inflation has risen more than expected. In October, consumer prices increased 0.9% and pushed the year-over-year gain to 6.2%, hitting a 30-year high, according to data from the U.S. Bureau of Labor Statistics.

It was the second month in a row that inflation was higher than what economists anticipated.

The consumer price index in September jumped 0.4% on the month and 5.4% on the year. That report prompted a 5.9% cost-of-living increase for people on Social Security, the largest jump in 40 years.

So if you don’t get a 6.2% raise this year, is that technically a pay cut? Not necessarily, according to some financial experts.

“It’s a lot more nuanced than that,” said AnnElizabeth Konkel, an economist at the Indeed Hiring Lab. “It depends on your basket of goods as a consumer.”

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Not necessarily a pay cut

While inflation has jumped overall, the consumer price index considers an array of things, a few of which have contributed more to rising costs than others.

“For most people, prices of the things that they’re having to pay for are going up, but these impacts are quite varied across the board,” said Mark Hamrick, senior economic analyst Bankrate.

Energy costs in October contributed heavily to the overall increase. Energy rose 4.8% from the previous month, and gasoline jumped 6.2%. Food rose 0.9%, with food at home increasing 1%.

The increases are even more staggering on the year. Energy prices are up 30% over the last 12 months, and gasoline is up nearly 50% in the same time period. Prices of used cars were up 2.5% in October, more than 26% from a year ago.

Because of these pockets of inflation, most consumers won’t see their individual costs go up 5.4% across the board. If you aren’t planning to buy a car, for example, or aren’t taking any trips that would be hit by higher fuel prices, you won’t be hit with the highest areas of inflation.

“Not everybody flew on a plane or bought a used car” in the last year, said Brett Ryan, senior U.S. economist at Deutsche Bank.

“The data doesn’t tell the personal story of every single person,” noted Bankrate’s Hamrick.

Who is hit hardest by inflation

To be sure, that doesn’t mean that people aren’t feeling the impact of higher prices on their budgets.

And, some people will be hit harder by inflation than others, generally those who make the lowest incomes and are thus the most vulnerable to price increased.

“Inflation really does weigh on those on the lower end of the income spectrum,” said Ryan, adding that energy prices end up being one of the hardest to cope with.

If you drive to work, … that’s problematic when gas prices are up a dollar per gallon.
Brett Ryan
senior U.S. economist at Deutsche Bank

“That’s one area where it’s harder to adjust your purchase quickly,” he said. “If you drive to work, you have to fill up the gas tank and that’s problematic when gas prices are up a dollar per gallon.”

Companies are being hit with rising costs, as well, which may mean that wages don’t keep pace with inflation this year. The budgeted median U.S. salary increase for 2021 is 3%, according to data from The Conference Board. The group also projected that cash for raises will be about 3% in 2022, as well.

“Companies looking at their budgets realize that [raises] are probably not going to meet inflation,” said John Dooney, a human resources manager with the Society for Human Resources Management. “But what we see is more strategies around really rewarding high performers.”

How to ask for a raise now

Even if you are being hit with higher prices due to inflation, experts wouldn’t advise using that as a reason to ask for a raise at work.

“I suspect that would get into a messy argument with a hiring manager because somebody in that position could turn around and say, ‘we’re experiencing price increases, as well,'” said Konkel, adding that people should probably leave inflation out of any wage or raise discussions.

Instead, take the time to assess and reflect on what you’ve achieved in your role, she said. If you’ve been in the position for longer than a year, have taken on more responsibility or otherwise outperformed, that’s all information to bring up with your manager or take to a performance review, if you have one at the end of the year.

High performers will likely have an easier time asking for more money, according to Dooney, and businesses may be more willing to give out one-time bonuses to reward employees.

In addition, experts don’t recommend that workers necessarily leave jobs if they don’t get raises that offset inflation right now. Economists don’t expect current volatility to be persistent and anticipate that prices will stabilize as the economy continues to recover.

“My expectation is that these things will sort themselves out,” Konkel said.

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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