Bloomberg: Inflation has turned $15/hr wages into a setback

 I wish I had seen this article a while back. Bloomberg:

The typical inflation rate is about 2%; this year, it’s been more like 5%. Workers who don’t know this, or who are slow to perceive the rise in prices they pay for goods like cars and groceries, won’t realize this, and will be happy with their unusually large raises. But companies, whose accountants and managers certainly know the true inflation rate, will also be happy, because they know they’re not actually paying more for labor.

That information asymmetry between workers and employers may be exactly what keeps wages from rising faster than inflation. If workers take a year to realize how much prices have gone up, they may be satisfied with the raises they got during the time of high inflation — even if that inflation ultimately turns out to be transitory. By then, it might be too late to negotiate for a real, inflation-adjusted raise. Many people suffer from what economists call “money illusion” — they tend to think of their income and wealth in pure dollars, instead of in terms of its real purchasing power, at least in the short term. Money illusion could in turn be a source of what economists call upward sticky nominal wages — the tendency of wages not to rise too fast in dollar terms, even when there’s a burst of inflation.

In other words, even if all the aforementioned economic factors driving up wages are very real, price rises could be happening independently of wage growth and could be eating up all the gains because wages simply don’t respond to inflation very quickly. By allowing prices to rise at a rapid clip just when workers are finally getting a bit of bargaining power, the U.S. might be wasting a golden opportunity to increase living standards.

Implications:

Eventually, people will realize that prices went up, and that their raises were illusory. At that point they will start getting mad. This is what happened in the 1970s, when a decade of high inflation coincided with — and possibly caused — real wage losses for the average American worker. Surveys later showed that the reason people didn’t like inflation was precisely that they thought their wages couldn’t keep up.

Economics is a weak subject of mine your wages go up but not enough to keep up with the prices of groceries and fuel. And we're in a time of weak economic growth.