The Effect of Inflation on Buying Power

There has been much discussion around the increasing financial distress experienced by the United States middle class.  Out of curiosity, I decided to do a little research and discovered that while the average salary has increased almost 12% total (1.6% compound annual growth) over the 7 year span considered below, something pretty interesting happened when looking at that salary increase with inflation factored in. It turns out, inflation has had a tremendous effect on the buying power of our wages as of late.  Moreover, that impact can vary wildly depending on what particular spending category we analyze.  Think of the following as an easy way to see just how much inflation has changed the buying power of the average full-time employee salary over the last few years.

For inflation figures, I used the Personal Consumption Expenditures Price Index, (or PCE.)  This index tracks price changes by function, meaning it groups the kind of things a household might use their money on into categories. It focuses on what households accomplish with their spending, and the value obtained by their spending over time.

In the chart below, expand the major categories and click on individual household categories to explore these trends.  Among the expense categories where Americans have been seeing more ‘bang for their buck’ lately, the inflation-adjusted salary will increase accordingly.  Conversely, in categories where the value has been on the decline (inflation is high), you will see the inflation-adjusted salary reduced to reflect just how much less an individual would be able to purchase with the average United States salary.

US Salaries and the Effects of Inflation

   Do yourself a favor and make sure to select the Level 3 – Detail Category : “Telephone and related communication Equipment”.


It’s hard not to notice that many of the categories in which we experienced an increase in buying power, overseas manufacturing seems to play a prominent role.  Also common here are categories which are strongly associated with recent technological advances.  Truly, these are the rewards of the globalist/technologist policies which have held favor for the last decade or so.

However, for the majority of categories, buying power has been held relatively flat over the seven year time period studied.  It’s almost impressive to see how adept the movie theater industry is at raising ticket prices at just the right rate to absorb the wage gains of the average American salary.

Depressingly, many of the categories we associate with the fundamental needs for human survival and many of the recreational or pleasurable activities have experienced downward pressure on buying power.


Table 2.5.4. Price Indexes for Personal Consumption Expenditures by Function
Bureau of Economic Analysis

Weekly & Hourly Earnings – (Current Population Survey – CPS)
United States Department of Labor: Bureau of Labor Statistics
Series Id: LEU0252881500
Not Seasonally Adjusted
Series title: (unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers