How U.S. Businesses Are Reacting to Inflation

According to a Pew Research Center survey reported in May 2022, 70% of Americans agreed inflation was a "very big problem" facing the country. No problem was more widely recognized by respondents—the next highest-ranking problem (the affordability of health care) trailed by 15 fewer percentage points among respondents.

The Bureau of Labor Statistics (BLS) produces two measures of inflation: the Consumer Price Index (CPI) and the Producer Price Index (PPI). CPI is a measure of the total value of goods and services consumers have bought over a specified period, while PPI is a measure of inflation from the perspective of producers. Using these BLS statistics from last year, May 2021 inflation rates were 5% for CPI and 7% for PPI. These numbers were much higher than in recent years, when rates were typically 2% or lower.

Nearly 3 in 4 HR professionals (73%) in a Society for Human Resource Management (SHRM) survey of HR professionals in Q4 2021 listed inflation concerns as one of the main 2021 organizational challenges. Inflation was fourth on a list of challenges, behind such things as labor shortages and health/safety concerns (see SHRM's State of the Workplace report).

Current Inflation Problems

As bad as inflation was last year, this year has been worse. May 2022 inflation rates were 8.6% for CPI and 10.6% for PPI. These are the worst inflation indicators that the U.S. economy has seen since the early 1980s.

But Not All Organizations Are Affected to the Same Degree

Considering these darkening economic results, another survey of 1,150 HR professionals addressed these issues in Q2 2022. This survey used a scientific sampling approach for SHRM members in the HR profession using the SHRM Voice of Work Research Panel.

Overall, 73% of the surveyed HR professionals indicated that inflation was a concern at their organization (only 8% said it was not a concern). The following industries showed high concern for inflation (meaning that 80% of respondents or more were concerned about inflation):

• 97%: agriculture.
• 95%: wholesale trade.
• 82%: utilities and energy.
• 82%: manufacturing.

On the other hand, these industries were less concerned about inflation (65% of respondents or fewer were concerned about inflation):

• 64%: education.
• 63%: transportation and warehousing.
• 57%: administrative and support services.
• 47%: hospitality.

In addition, we saw important differences in concern about inflation by organization size, with more HR professionals in smaller organizations reporting being concerned about inflation:

• 81% of HR professionals in small organizations (less than 100 employees).
• 74% of HR professionals in medium organizations (100-499 employees).
• 67% of HR professionals in large organizations (500 or more employees).

Impact on Workers

The survey also addressed why they were concerned about inflation. Overall, the most-cited reason had to do with how employees' lives would be affected:

• 87%: the lives of our employees.
• 70%: customers and consumers.
• 61%: suppliers and wholesale costs.

High inflation can have a major impact on the lives of employees. However, it does not need to be a major problem for employees, depending on other factors. If workers' wages increase at the pace of inflation, then their buying power will not be hindered in meaningful ways. For example, if wages increase at 4% but the cost of goods increases by 10%, then employees can't afford to buy as many of those goods with their money. But if both rise at 10%, then the goods will cost more, but employees will have the additional money needed to afford them.

Effects on Raises

Considering this, HR professionals also reported their organizations' plans for factoring in inflation when granting annual pay raises for 2022. Of those who were aware of their organizations' plans for annual pay raises (814 of the HR professionals surveyed):

• 63% reported that inflation is being considered or accounted for in annual pay raises.
• • 36% reported, "Yes, we are considering inflation" when making annual pay raises.
  • 27% reported, "Yes, inflation is a standard part of our annual cost of living pay adjustments."
• 37% reported, "No," they are not considering inflation when making annual pay raises.

These results varied by organization size. Small organizations were much more likely than large organizations to consider inflation when calculating annual pay raises:

76% of HR professionals in small organizations reported that inflation is being considered or accounted for in annual pay raises.

• 49% reported, "Yes, we are considering inflation."
• 27% reported, "Yes, inflation is a standard part of our annual cost of living pay adjustments."

• 36% reported, "Yes, we are considering inflation."
• 29% reported, "Yes, inflation is a standard part of our annual cost of living pay adjustments."
• 27% reported, "Yes, we are considering inflation."
• 26% reported, "Yes, inflation is a standard part of our annual cost of living pay adjustments."

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