Wages rising faster than inflation: “purchasing power is improving”

Good news for the wallets of many families, because wages are rising faster than inflation in more and more countries. Macroeconomist Edin Mojácic makes this observation. “If you look at the United States, England and many other European countries, you will see that the increase in wages is higher than the increase in prices.”

The economist notes that this offsets inflation better than was the case previously. Purchasing power is improving. There’s also a good chance we won’t get into that dreaded recession. However, there is also a downside to the salary increases that many people are experiencing now. If wages are rising faster than prices, this means that workers cannot afford them. By doing so, we will continue the upward pressure on inflation, which we all want to fight,” says Mojacic.

The fact that inflation is now somewhat lower is mainly due to lower energy prices compared to last year. However, we should not consider ourselves wealthy yet. “The last stretch weighs the heaviest,” Mojacic warns. This is the moment when you, as a central bank, have to deal a heavy blow to inflation. That hammer blow would be another hike in interest rates. Only: this is something that people dare not do.

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We started living on credit.

Mojácic particularly finds the idea that inflation can be fought without doing “harm.” Unfortunately, this is not possible. I go back very quickly to 1970 and 1971. Exactly the same thing happened there. The United States was struggling with very high inflation. President Nixon then had a plan to fight inflation without anyone realizing it. Nixon didn’t want to make a decision about tackling inflation or keeping employment high. It didn’t work, after that he still had to choose. Mojácic finds it ironic that “ten years of crippling inflation” was followed by “a massive rise in unemployment”.

Mujagic is now anticipating this problem as well. If interest rates are raised more now, it may only lead to financial chaos due to high debt. But those high debts didn’t suddenly appear out of thin air, “as the economist points out to the period circa 1971.” From August 15, 1971, West began to live on credit. Debt has accumulated and you are now in a position where you notice it very clearly, so that we cannot rein in inflation.