No, Higher Wages Aren’t a “Silver Lining” of Inflation

Source: Foundation for Economic Education
by Peter Jacobsen

“Arecent CNBC article highlights a common economic fallacy surrounding the concept of inflation. The author claims that inflation can be beneficial because, ‘as inflation takes hold, wages may increase, too.’ This statement, though misleading, holds a grain of truth. In order to understand where it goes horribly wrong, it’s important to understand the difference between nominal wages, simply the number on your paycheck, and real wages, what your paycheck can buy you relative to prices. Because, although it’s true that inflation is associated with higher nominal wages, this increase in nominal wages actually represents a period of lower real wages and lower wealth overall.” (07/09/21)