Inflation is wiping out wage increases for many workers | Hacker News Reader

Inflation is wiping out wage increases for many workers

washingtonpost.com

56 pointsxqcgrek248 comments

Well, of course. Isn’t that what inflation is for? Give ‘em a raise on paper so they keep quiet. Then take it back through “the invisible tax”.

Those in debt (which is the majority of people) benefit from inflation though. Be it mortgages, car loans, or even just credit-card debts. If inflation/wage growth is 6% and your mortgage is 3% and your car payment is 5%, you're getting ahead.

The people who are hurt by inflation are people holding cash and/or bonds.

Only if your debt is fixed for term and the term is long

Most mortgages in most parts of the world aren't long term fixed rate. Same is true of student debt and credit card debt.

Luckily for those people, interest rates are at record lows as well. So even if you are in a variable-rate loan, you're still making it out ahead right now.

> Those in debt (which is the majority of people) benefit from inflation though

it's a temporal win though.

it never ends well.

You can also use non-debt based leverage to benefit from inflation. For example selling put spreads or buying calls on inflating stocks or etfs.

Also creates a steady state where actual taxes are slowly increasing due to bracket creep.

Timely.

https://www.cbsnews.com/amp/news/tax-brackets-2022-inflation...

Inflation coupled with wage growth is great for homeowners. Mortgage payments are inflation-proof.

Interesting, in NZ you have an interest rate you pay to the bank for your mortgage that has to be renewed every few years. This interest rate is definitely impacted by inflation. Does the US/where you are from not have a similar system?

Nope. Most mortgage rates are fixed for the full term of the loan (typically 30 years).

If you can afford the down payment, it’s a great time to buy a house. (Even better would have been a few months ago, before inflation started to kick into high gear).

How much interest do you pay on a 30 year fixed interest mortgage? Seems like a total no-brainer if it is below 2-3%

2 - 4% these days. Its only a no brainer only if property prices never go down, which does seems to be the case these days.

Holy shit that is insane. You’re right, that is indeed inflation proof. Is this the US?

Yes. Fixed mortgages are the norm.

There are several varieties, fixed rate mortgages exist for 10-30 year terms.

Adjustable rate mortgages also exist and commonly with a lower starting interest rate, but they are often a trap for people with low incomes who suddenly cannot afford their home because of interest rates outside their control.

And some mortgages have a cliff, so that you're paying mostly just interest and very little principle. Then at the end of the term you basically have to pay the entire principle at once.

So you can do it either way. A fixed rate is vastly less risky, I'm surprised that an adjustable rate is the default in NZ. In the time I've had a home rates have varied from like <3% to 7%.

We have fixed and floating. But generally the absolute max you would fix for is 5 years. People commonly fix for 1 year.

In the US. In the UK it's normal to refinance every few years. Fixed rates of 2-5 years are common and 20% or so of people are fully variable.

Property taxes and maintenance costs are not, however.

There's not much to like about the California tax code, but prop 13 is one good thing there. It caps the rate of property tax increase at 1% per year.

Whereas my property tax in Oregon is up 10% this year. That's a tax on an unrealized gain. Worse, it's not even a real gain, it's a tax for just keeping pace with inflation.

Proposition 13 is good for those who have had a property for a long time, but it's certainly not good for new buyers. They are effectively subsidizing long-term residents. I understand why property owners might like it after they've been somewhere for a while, but I personally find it fundamentally unfair.

Based on that reasoning, is rent control also unfair?

Generally, the same group wants both ever increasing property taxes (because people who own property are evil rent-seeking slumlords) and completely frozen rents.

And then complain that there isn't enough housing.

Yes. It's the epitome of "eff you, got mine" thinking.

Well yeah. I mean the tax base needs to keep up with inflation too. Can’t build roads with $100 when everything costs $110 now.

And it screws everyone who isn't in debt up to their eyeballs on their home.

It's more likely that the wage increases are causing the inflation. The rich typically do not compete for everyday items like groceries and gasoline.

But the rich do control the supply for everyday items. People aren't eating more all of a sudden.

Food spending does increase as income increases:

https://www.ers.usda.gov/data-products/chart-gallery/gallery...

If food spending increases with income, doesn't that mean that rich people's competition over food is proportional to their wealth?

This just tells me spending increases. Nothing about absolute consumption. I don't know about others, but I'm consuming about the same amount of milk I was when I was getting $10/hr vs $35/hr. I might buy more "luxury" products (ice cream, organic milk, etc), but I'm certainly not buying more than I was at $10/hr. My caloric intake is about the same. Perhaps, I'm the odd one out. In my case, most of that extra money just went towards rent and a car.

If wage increases cause inflation, then what causes wage increases?

tight labor market?

Let’s assume this is the case. Anecdotally [0], I’ve observed (and seen many reports [1]) of the labor market being especially tight in low-margin, low paying industries (e.g. food service, agricultural work, trucking).

Perhaps the costs of goods that are now experiencing inflation (dining out, groceries, shipping) were artificially deflated due to severe underpaying of workers. In order to pay people who work in those industries living wages, prices must rise, since margins are so thin that they can’t absorb higher labor costs.

Pessimistically, I wonder if this will mean many businesses in those industries will close, since demand will suffer. If wages in the restaurant industry rise significantly (without concordant pay raises across the board), many people will no longer be able to afford to eat out.

[0] I recently went to a fast casual Mediterranean place. They recently increased starting pay for workers to $25/hour. A simple pita wrap now costs $15. I went somewhere else.

[1] https://news.ycombinator.com/item?id=28834365

Also inflation. There's definitely a feedback loop and expectations of inflation can be enough to cause inflation.

So if wage increases cause inflation, and inflation causes wage increases, how is it more likely that wage increases cause inflation?

It's excessive QE since the pandemic started... The number of US dollars in existence is up around 40% since March 2020...

Source: https://fred.stlouisfed.org/series/M1SL

And on top of that tons of money was moved into high velocity parts of the economy (i.e. the pockets of everyone who's rent/mortgage/student payments were paused).

Hasn't this been the case for years? Where I work, yearly raises are usually 2-3% except for this year (they did 5%). During those years, inflation was somewhere in that same window.

Meanwhile I haven’t seen a wage change since 2018….when I accepted my current role.

It’s hard. It’s a good job. And I can do it with my eyes closed. But I’m probably definitely leaving a good percentage on the table, in exchange for other ancillaries (lots of time off per year, cheap benefits etc)

> It’s hard. It’s a good job. And I can do it with my eyes closed. But I’m probably definitely leaving a good percentage on the table, in exchange for other ancillaries (lots of time off per year, cheap benefits etc)

you can find this at a higher wage too. You will be surprised.

> except for this year (they did 5%).

my employer said rsu price increase was inflation adjustment. There is no adjustment to base pay.

price inflation for thee, asset inflation for me.

Until interest rates are raised, and then the higher discount rate used to value future cash flows results in a crash of asset prices.

Which is not likely to happen any time soon. Just look at the palava associated with the US debt ceiling. Fed tapering and interest rate rises will either result in a US government default (which won't be allowed to happen) or more money printing (which will). Either way, we are heading for hyperinflation.

Yeah, the hyperinflation story... Everyone seems to have forgotten what the Fed did in the 70s, namely cripple the private economy with massive interest raises. Did you really forget that QE is meant for government bonds? The short term federal funds rate for private banks and the treasury yield curve are two completely different things.

Isn't that just the way it goes. The common man finally finds himself in a position of power and business has to start paying more and then we get 5-6% inflation.

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