Sorry If You Thought You Could Upgrade Your Lifestyle in 2015

Turns out some of your purchasing power came from decreased inflation.

Photo credit: Michael Gil, CC BY 2.0.

Today in “depressing news about all the money we could be making had the economy gone in a different direction,” The Atlantic shares the results of a new study from the Economic Policy Institute:

According to EPI, if wages had kept pace with productivity growth thirty or so years, a worker making $50,000 today would instead be earning about $75,000. Instead, the gains from productivity have been channeled elsewhere, often to executives and shareholders.

I’ll let you pause for a moment to imagine what you might do with an extra $25,000. What you might have done with an extra $25,000 per year.

Of course, there’s always someone who jumps in with “if everyone were earning more money things would just cost more, that’s how inflation works,” which brings us to EPI’s next major point: if you got a pay increase in 2015 and felt like you were able to improve your lifestyle slightly, congrats—but keep in mind that we had a significant decrease in inflation that year.

I don’t mean deflation, by the way. We still had inflation. But, as the US Inflation Calculator informs us:

Inflation for all of 2015 was the second weakest for a calendar year in more than five decades.

I should get a government source on this. Here’s one from the Bureau of Labor Statistics:

The PPI for final demand reversed course in 2015, falling 1.0 percent, compared with a 0.9-percent advance in 2014.

PPI stands for “Producer Price Index,” and “final demand” essentially means all the things that people and businesses buy, excluding the things that businesses buy to help them make more things. (Just roll with it.) The point of this data point? Stuff cost less last year.

What does that mean for all of us? The Atlantic explains that nominal wages increased by 1.8 percent, but when you factor in the decrease in inflation, “wage growth was zero.”

Then The Atlantic gives us the quote of the day:

“Relying on low inflation to increase living standards is a poor long-term strategy,” writes Elise Gould, a senior economist at EPI and the paper’s author.

You don’t say.

Economists, feel free to fill in the details in the comments. The rest of us can start thinking about how to cut back on expenses when inflation starts to rise again.

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