4 ms·

If you don't give a raise that matches inflation, you are cutting pay. Even if inflation drops to 2% next year, the value of the money you're paying to your emp

If you don't give a raise that matches inflation, you are cutting pay. Even if inflation drops to 2% next year, the value of the money you're paying to your employee doesn't go up. If inflation is 7% this year and I raise your $100,000 salary to $107,000, an inflation rate of 2% next year doesn't mean I'm overpaying you by $5,000. It means that I once again need to give you a 2% raise for you to get the exact same amount of value for your labor. The inflation rate would need to rubber band to a negative rate for anyone to shed tears for the employers.

seanmcdirmid 5y ago
> The inflation rate would need to rubber band to a negative rate for anyone to shed tears for the employers. Deflation would probably cause lots of layoffs, tears would be shed for many.
missedthecue 5y ago
Using this logic, how does inflation ever end? If your landlord doesn't raise rents, he's getting a paycut. If your utility company doesn't raise rates, they're getting a paycut! If the grocer doesn't raise prices, he's also getting a paycut. But now we're back to you. Everyone else has raised prices to compensate so now you've got to charge more for labor again which eats into their margins and the vicious cycle continues. Sooner or later, someone will have to blink or this will continue to get even further out of hand.
- bastawhiz 5y ago
  You should take it up with the economists that spend their lives thinking about this stuff. All I know is that inflation has been positive (numerically) for essentially my entire life and most of the country's history leading up to my birth. I doubt it was designed to "end".
- wickedsickeune 5y ago
  I believe it doesn't exactly work this way; because the initial driver of the inflation was someone (let's say the landlord in your example) raised their prices. Yes everyone else should raise their prices to adapt, but it's not everyone. One can argue that the higher prices (eg by landlords) were due to increased demand with supply that couldn't keep up. Still, this doesn't mean that they are permanent, since supply can improve, or demand can return to normal, stopping the inflationary cycle. If you assume that demand cannot go down (eg for high perf chips, not land, which more and more industries utilise now), then I can't think of a reason that supply can't go up in the long term (unless the supplier is profiteering).
  - xyzzy123 5y ago
    Nobody "blinks" they just run out of pricing power. Raising prices due to inflation is not particularly different than trying to raise prices for any other reason. What limits you doing it more is that you can't. So inflation is generally "eaten" by the least powerful actors in the system - those with the least ability to raise prices. In a loose sense, all pricing is a kind of negotiation. Inflation is messy and price updates take time to propagate due to stickiness, inertia, contracts, negotiation costs etc. Also psychology. It is very helpful if others in your industry announce they are raising prices... Many consumer facing businesses e.g., supermarkets, utilities, consumer SaaS can in theory raise prices instantly (subject to market forces, public opinion, regulation, etc). Workers on the other hand, need to switch jobs or wait for reviews. B2B companies and suppliers may need to wait for contract renewals. After the delays and messy details are taken into account what's left are market forces. This looks a lot like "who has the upper hand in pricing". New taxes are similarly complex and it is often not clear who will be able to pass them on and who will ultimately absorb them.
- chii 5y ago
  It doesn't end, but it is a subtle push to increase productivity over your competitors do that you make a higher margin (or lower prices to get more markets share).

seanmcdirmid 5y ago

> The inflation rate would need to rubber band to a negative rate for anyone to shed tears for the employers. Deflation would probably cause lots of layoffs, tears would be shed for many.

missedthecue 5y ago

Using this logic, how does inflation ever end? If your landlord doesn't raise rents, he's getting a paycut. If your utility company doesn't raise rates, they're getting a paycut! If the grocer doesn't raise prices, he's also getting a paycut. But now we're back to you. Everyone else has raised prices to compensate so now you've got to charge more for labor again which eats into their margins and the vicious cycle continues. Sooner or later, someone will have to blink or this will continue to get even further out of hand.

bastawhiz 5y ago
You should take it up with the economists that spend their lives thinking about this stuff. All I know is that inflation has been positive (numerically) for essentially my entire life and most of the country's history leading up to my birth. I doubt it was designed to "end".
wickedsickeune 5y ago
I believe it doesn't exactly work this way; because the initial driver of the inflation was someone (let's say the landlord in your example) raised their prices. Yes everyone else should raise their prices to adapt, but it's not everyone. One can argue that the higher prices (eg by landlords) were due to increased demand with supply that couldn't keep up. Still, this doesn't mean that they are permanent, since supply can improve, or demand can return to normal, stopping the inflationary cycle. If you assume that demand cannot go down (eg for high perf chips, not land, which more and more industries utilise now), then I can't think of a reason that supply can't go up in the long term (unless the supplier is profiteering).
- xyzzy123 5y ago
  Nobody "blinks" they just run out of pricing power. Raising prices due to inflation is not particularly different than trying to raise prices for any other reason. What limits you doing it more is that you can't. So inflation is generally "eaten" by the least powerful actors in the system - those with the least ability to raise prices. In a loose sense, all pricing is a kind of negotiation. Inflation is messy and price updates take time to propagate due to stickiness, inertia, contracts, negotiation costs etc. Also psychology. It is very helpful if others in your industry announce they are raising prices... Many consumer facing businesses e.g., supermarkets, utilities, consumer SaaS can in theory raise prices instantly (subject to market forces, public opinion, regulation, etc). Workers on the other hand, need to switch jobs or wait for reviews. B2B companies and suppliers may need to wait for contract renewals. After the delays and messy details are taken into account what's left are market forces. This looks a lot like "who has the upper hand in pricing". New taxes are similarly complex and it is often not clear who will be able to pass them on and who will ultimately absorb them.
chii 5y ago
It doesn't end, but it is a subtle push to increase productivity over your competitors do that you make a higher margin (or lower prices to get more markets share).