Economy

Inflation Remains Elevated as Salaries Fail to Keep Up

rising inflation

If you feel like the inflation of the past several years has left you behind financially, you’re not alone. Over 97% of all salaries in this country have failed to keep up with inflation over the past five years.

Inflation shows no sign of really abating either, as the inflation rate remains at 3.3%. While the Federal Reserve has said that it remains committed to bringing inflation down to 2%, it has thus far shown little ability to do so.

One of the biggest fears many people have is that inflation will become entrenched as it did in the 1970s, leading to another potential stagflationary decade. While many people are already trying to protect themselves and their financial well-being against inflation, an economy in stagflation is another beast altogether.

While there are many households doing well financially today, continued inflation and a major recession could cause a great deal of financial heartache. And it may mean that traditional safe haven assets like gold and silver end up becoming some of the best ways to protect and preserve wealth.

The Reality of Declining Pay

While most people look at their nominal salary and assume they’re doing well as long as it isn’t declining, the reality of living with inflation means that the purchasing power of that salary is being reduced year after year.

If you make $75,000 a year and get a 1% raise every year, at the end of five years your salary will be just over $78,000. But inflation has been so bad over the past five years that that $78,000 salary today has the same purchasing power as $63,600 five years ago.

So while your nominal salary may have been increasing and you may think that you’re doing at least marginally better than you were, in reality the purchasing power of your salary has decreased by 18%. Can you afford that kind of pay cut?

Many people are aware of that at least somewhat, in that they see the prices they pay at the grocery store, the prices they pay for gas at the mump, or the prices they pay for rent have increased substantially over the past five years.

After decades of low inflation, most Americans have forgotten how to survive in an era of high inflation. And even 3-4% inflation is such a significant step up from the 2% and lower inflation that we’ve become accustomed to that it requires a change in mindset to adapt to it.

When looking at salaries throughout the country, there are very few sectors where salaries have kept up with inflation. In many areas of the labor market, salaries have fallen by double digits against inflation.

That’s why so many households are finding it difficult to keep up with inflation. And even with Treasury bonds making over 5%, after taxation those yields are just barely keeping up with inflation, making it difficult to just park your money and protect it against inflation.

The Latest Inflation Report

The only positive sign from the latest inflation report was that inflation didn’t move over the course of the month. Whether that portends lower inflation in the future or whether that’s just a momentary blip is unclear.

But the Federal Reserve continues to insist that it won’t cut rates until inflation shows sustained movement towards its 2% annual target. And that could take several months.

Which will come first: inflation showing sustained movement towards the Fed’s 2% target, or a recession that forces the Fed’s hand and forces it to cut rates?

Like it or not, the Fed finds itself between a rock and a hard place. As the labor market weakens and the economy continues to slink towards recession, there will be increasing pressure on the Fed to loosen monetary policy by cutting rates and possibly even restarting quantitative easing.

Once that happens, however, inflation could take off once again. And with the elections coming up in November, the Fed doesn’t want to risk being seen as the spoiler, ruining Biden’s chances for reelection.

Are You Protected?

Of course, none of this really matters to American households who have to contend with the impact of inflation on their finances. Most people probably couldn’t give a rip about what’s going on in Washington, as long as it doesn’t affect their financial well-being.

But what’s going on in Washington is impacting them negatively, with a rising national debt, rising budget deficits, and continued inflation combining to create a perfect storm that is impoverishing the country.

The likelihood of recession seems to be increasing, even if slowly, and many people fear a repeat of a 2008-style crisis. And that’s why so many people have started to turn to safe haven assets like gold and silver to help protect their financial health.

Gold and silver were standout performers in the aftermath of the 2008 financial crisis, with gold gaining 25% during the same period that markets fell more than 50% (October 2007 to March 2009).

Gold went on to set record highs in 2011, while silver set near-record highs. And since 2020, both gold and silver have once again seen strong investment demand that has boosted their prices.

With inflation remaining persistent and fears of recession growing, demand for gold and silver remains strong. And many analysts think that this could only be the beginning of a multi-year bull market that rivals the one we saw from 2008-2011.

If stagflation occurs, and we see another decade like the 1970s, gold and silver could see an even stronger bull market. And that’s why it’s so important to get prepared with gold and silver today.

Whether you’re protecting tax-advantaged savings with gold IRAs and silver IRAs, or just buying gold and silver coins and bars to store at home, gold and silver can play a strong and impactful role in helping you safeguard your financial well-being.

As inflation hedges and safe haven assets, gold and silver are among the most demanded assets during times of economic turmoil and financial uncertainty. And even if you’ve never purchased gold and silver before, the process can be simple, especially when you work with trusted partners like Goldco.

Goldco has helped thousands of customers benefit from owning gold and silver over the years. With over $2.5 billion in precious metals placements, we have worked hard to earn a reputation as one of the best and most trusted gold companies in the industry.

If you’re worried about the impact inflation is having on your finances and you want to do something about it, call Goldco today to learn more about how gold and silver can help you protect yourself and your money against inflation.

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