Year over Year Inflation and You
You're losing more than you think
I find the CPI numbers somewhat misleading for a few reasons.
One of them is that each year, if you don't recieve a pay increase that year, you are able to buy less goods. Simple.
However if you do not recieve any wages for multiple years due to our economy sucking, it compounds over time.
Let's say you got hired as a engineer in 2021 on January 1.
Well, by end of year (EOY) you will have about 4.7% less purchasing power.
The sucks. But what if you don't get a wage increase the next year?
Well you lose around 8% by the end of 2022, in this example.
Then in 2023, you'll lose another 4.1%, in 2024 another 2.9%, and in 2025 another 2.7%.
You can add those up just for the sake of example, and you get 22.4%.
Shocking right?
Technically that's not how it work though, you have to compound them each year.
We're going to pretend that we have a salary of $50,000 a year for this example.
We spend all $50,000 on goods every year at prices in that economy each year and we buy the same basket of unnamed goods every year.
At the end of 2021, inflation was at 4.7%, so from January 1 2021 to December 31 2021 we lost 4.7% of the amount of real goods we can buy.
We are going to do 50000 x .047.
It would take 50000 x .047 dollars to buy 50000 dollars worth of goods at the end of the year.
We lose about $2350.
To continue our example, we are going to add 2350 to 50000.
So we have 52350 now.
Let's do the next year. We do 52350 x the inflation number for that year, which is a whopping 8%.
52350 x .08 = 4188
Add that to our old number.
56538 is our number for the end of 2022.
Keep doing that for each number until today.
Our sum is going to be called S for salary
56538 * .041 = S * .029 = S * .027 = S
(58,856.058) ~60,562.88
The number we get is 62198.07
In 5 years, the salary in this scenario lost ~12.2k, which is about 25% (24.4%) of the money that person was earning in 2021.
This is why the cost of living has been so brutal and has been such a important topic.
The politicians are shieled from it as well as the wealthy because they make more and more money all the time through investments, businesses, whatever else.
We need some wage increases up in here. Inflation keeps on chugging. They pat themselves on the back if we hit our 2% number - which is important - because if we had deflation our economy would grind to a halt.
We still lose 2% if we don't get a raise.
Data from: