U.S. Inflation Rate Reaches 8.6% in May, a 40-Year High, Pushing Wages Up

Bigger, more frequent pay raises fail to keep pace with rising prices

Stephen Miller, CEBS By Stephen Miller, CEBS June 10, 2022
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U.S. Inflation Rate Reaches 8.6% in May, a 40-Year High, Pushing Wages Up

Updated Inflation Statistics

Adding more pressure on employers to raise wages, consumer prices rose 9.1 percent year over year in June 2022, a fresh 40-year high, the U.S. Bureau of Labor Statistics (BLS) reported in July.

Inflation has grown sharply since late 2021. 

Higher inflation means the buying power of workers' take-home pay is shrinking. Real (inflation-adjusted) average hourly earnings fell 3 percent, seasonally adjusted, from May 2021 to May 2022, the BLS separately reported in June.

An indication that inflation is likely to remain high was provided by the producer price index (PPI), a key leading indicator for the prices that consumers eventually pay. In June, the BLS announced that the PPI rose 10.8 percent for the 12 months ended in May.


The U.S. inflation rate reached 8.6 percent in May, its highest level since December 1981, the U.S. Department of Labor (DOL) reported on June 10, putting pressure on employers to raise wages to keep pace.

An unusually tight U.S. labor market, combined with spiking gas and food prices, are to blame for creating pricing pressures across the economy.



In April, the consumer price index (CPI) had ticked down to 8.3 percent year over year, off of a March high of 8.5 percent. 

The long-term average inflation rate in the U.S. is around 3.2 percent, although consumers had grown used to more moderate annual price increases averaging 1.75 percent from 2010 to 2019.

The May CPI measure came in higher than consensus expectations that the annual rate would stay unchanged at 8.3 percent, indicating that "signs of inflation peaking in April were wrong," according to The Kobeissi Letter, an industry commentary on global capital markets. 

Tweeted Mohamed A. El-Erian, chief economic adviser at Allianz, "Amplifying the economic/social/political discomfort, [the CPI] headline is a new high for this inflation cycle. Also, if the first 10 days of June are anything to go by, the next monthly measure would be higher."

Another indication that inflation is likely to remain high was provided by the producer price index (PPI), a key leading indicator for the prices that consumers eventually pay. In June, the BLS announced that the PPI rose 10.8 percent for the 12 months ended in May.

Upward Pressures on Wages

According to the June 3 employment report from the Bureau of Labor Statistics (BLS), wages continued to climb in May, driving concerns about an inflationary wage spiral.

Over the 12-month period ending in May, average hourly earnings (nonfarm payrolls) increased by 5.2 percent, down slightly from the April year-over-year increase of 5.5 percent.

Similarly, findings announced on June 2 from advisory firm Aon's biannual study of nearly 2,000 employers show that, for U.S. companies, average budgeted salary increases in 2022 reached 5.2 percent, up from 4.5 percent last year, including merit raises and promotions.

Researchers have also reported a wide variation in pay increase plans among different industry sectors. For the 12-month period ending in March, for example, the BLS reported that wage and salary increases ranged from 4 percent for construction and maintenance occupations to 7.8 percent for service occupations.

Hourly wages have been rising faster than salaries, with annual wage growth reaching 6.1 percent in May, according to the Federal Reserve Bank of Atlanta's wage tracker.

Higher inflation, however, means the buying power of workers' take-home pay is shrinking. Real (inflation-adjusted) average hourly earnings, seasonally adjusted, fell 3 percent from May 2021 to May 2022, the BLS separately reported in June.

"For the past 10 years, very low inflation has provided real wage growth for U.S. workers," said Tom McMullen, senior client partner with organizational consulting firm Korn Ferry in Chicago. "Wages are up, the highest rate of change in the past decade, but inflation is the highest in 40 years."

He observed, "you don't hear much angst when wage growth exceeds inflation, but we're hearing it now, especially given the large gap between the two."

While employers are offering higher wages to attract talent, the gap between job openings and available workers remained at 5.5 million in April, or about two jobs for every unemployed worker, the BLS said in its June 1 jobs report.

"Many organizations are willing to take a less competitive approach to compensation while they wait for the labor market to cool down," said Tony Guadagni, Washington, D.C.-based senior principal in consultancy Gartner's HR practice. "Yet, these organizations will find themselves at a significant strategic and operational disadvantage if demand continues as anticipated—especially as other employers offer higher base pay salaries."

Midyear Pay Increases

A May survey of 337 U.S. companies by pay consultancy Pearl Myer found that about one-third of organizations are considering or planning to provide midyear salary increases in 2022:

  • 23 percent of companies are planning midyear salary adjustments in addition to their annually scheduled pay increases.
  • An additional 8 percent are considering this action.

"It is very unusual to see so many companies planning a second round of adjustments," said Rebecca Toman, vice president of the survey business unit at Pearl Meyer, based near Boston. "Normally, budgets are set well in advance for an annual rise. This is further indication that a shift is occurring—at least for now—when it comes to setting pay for the established workforce."

Targeted Pay Raises

Most companies considering midyear increases said they would be focused on key employees, targeted job families and top performers rather than granted across the board.

Looking down the road, McMullen said pay increases of 8 percent or higher are unlikely for a typical employee but "could be likely for top performers and those in high demand roles."

He noted, "most employers base their pay increase budgets based on compensation forecasting surveys in the markets they compete against, not cost of living surveys."

Related SHRM Articles:

High Inflation Means Resetting Pay Strategies, All Things Work, June 2022

How to Avoid Unintended Consequences When Raising Pay, HR Magazine, June 2022

High Inflation Disrupts Retirement Savings Strategies, SHRM Online, May 2022

Salary Budget Growth of 5% Most Common Increase in New SurveySHRM Online, April 2022

Related SHRM Resources:

SHRM Express Request: Salary Increase Projections 2022

SHRM Express Request: Salary Increases 2023: Survey Participation Opportunities

[Need real-time, HR-reported compensation reports? Check out the SHRM Compensation Data Center]


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