Wages can’t keep up with inflation

NIALA BOODHOO: Good morning! Welcome to Axios Today!

It’s Thursday July 14th.

I’m Niala Boodhoo.

Here’s what you need to know today: U.S. immigration and customs enforcement is running out of money. Plus, the millennial friendship crisis.

But first, today’s One Big Thing: wages can’t keep up with inflation.

New June inflation numbers released yesterday show the Consumer Price Index rose 9.1% since last year. That's the fastest annual pace since November of 1981. And to make matters worse, wages aren't keeping up. Axios’ chief economic correspondent Neil Irwin is here to go deeper. Hey Neil.

NEIL IRWIN: Hi Niala.

NIALA: So you wrote about this yesterday, another month, another terrible inflation report. But energy prices were responsible for more than half of this increase. Last month they were up 11% and we have seen those numbers come down a bit in the last few weeks. And meat was also slightly cheaper last month. Are any of those things good signs or am I grasping at straws here.

NEIL: Yeah, look, gas prices, other energy prices are coming down since mid-June. Um, so those, you know, we will see some relief in the July numbers when those eventually come out. At the same time, you know, there's some really bad signs in this report. And, and one of those is that as you say, half of its energy prices. But we're seeing some real inflationary momentum in services, in things that aren't energy and food n core inflation and economists call it. That's a sign that this inflation is becoming embedded in the economy in a way that is really problematic and, and might take a while to go away.

NIALA: Remind us what goes into core inflation, cuz I think people are gonna be hearing that term a lot.

NEIL: Yeah so it's everything other than food and energy. The idea is that food and energy are volatile, have their own kind of dynamics in those markets. So you look through them and, and look at other things. The biggest part of core inflation is shelter. It's rents and the equivalent rent if you were to, to rent your own house, uh, as odd as that might sound. And that's kind of creating a floor underneath core inflation and you know, really keeping inflation from coming down overall by very much.

NIALA: So let's just kind of pile on with the bad news here, because we're also seeing the sharpest decline in real wages in decades. Is this all because of inflation or are employers actually paying people less?

NEIL: No, people are getting raises, uh, average, hourly earnings are. 5.1% over the last year, that's a good number in normal times, at least cuz normally inflation is, you know, 2%. Uh, now inflation is 9%, 5% uh, wage gains is not much, uh, you're you're losing ground. You know, depending on which measure of inflation, which measure of earnings you want to use, we're seeing the steepest real wage losses in a long time going back to the eighties, uh, that's a terrible sign. That's why people are unhappy with the economy. If you haven't seen a raise this year, or haven't seen much of a raise this year, you are losing ground financially. It's no wonder people aren't very happy about that.

NIALA: But we do know the labor market is really tight, which means that that should put pressure on wages. Do we think that wages will go up more than 5% given how hard it is for employers to keep and hire workers?

NEIL: In truth, the trend the last few months has been the other direction. Uh, wage gains actually peaked back in March at 5.6% year over year. We're now down to 5.1. The good news is we don't have what they call a wage price spiral. We don't have a situation where employers are paying more and more and so that's feeding into inflation and making inflation higher. The bad news is that means people are losing ground and are worse off.

NIALA: So I got a text from Jon in DC this morning with a question about inflation

I was hoping you could answer Neil.

NEIL: Sure.

JON: Hi Niala. How is it that inflation is so high but the dollar is so strong?

NEIL: So John is exactly right that the, in terms of the directions of what you expect to happen, uh, when the dollar rises, which the, the US dollar has been rising quite sharply, uh, you'd expect that to make inflation lower because imports become cheaper. You know, if you're importing French wine or, you know, anything from overseas that should, all things equal ,be cheaper because of the strong dollar. That said, the US economy is less reliant on imports than, than a lot of economies. This is a big country, huge GDP, geographically diverse. We grow our own food. We, you know, make our own energy. So a move in the dollar does not affect the overall US inflationary picture as much as it would in a smaller country. And that's why we're seeing, even with this strong dollar continued quite strong inflation.

NIALA: If you have questions about inflation, you can text them to me. Maybe I will get Neil to answer them. Uh, it's (202) 918-4893. Neil Irwin, you can also find the Axios macro newsletter. He's Axios, chief economic correspondent. Thanks Neil.

NEIL: Thanks Niala.

NIALA: In a moment - why Immigration and Customs Enforcement is on track to spend more money than ever before.

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NIALA: Welcome back to Axios Today! I’m Niala Boodhoo.

The US Immigration and Customs Enforcement Agency is on track to run out of money by October without additional funding. Axios' Stef Kight has learned the Department of Homeland Security is planning on pulling millions of dollars from other federal programs.

STEF KIGHT: ICE is looking at a roughly $345 million shortfall for this fiscal year. And they're using a mechanism called reprogramming, which allows them to reshuffle funds from within the agency, within ICE, and also to take money from other agencies that are still within the Department of Homeland Security. So for example, about a hundred million dollars is expected to come from the Coast Guard to help ICE ensure they can continue with all of their programs and work without running out of money by the end of this fiscal year. There's a couple of different reasons why ICE is facing the shortfall, including new Biden policies, court decisions and of course, the fact that we've seen higher than usual numbers at the US-Mexico border for now a long time. ICE is of course, one of the most controversial government agencies and progressives have really criticized the agency because of its role in arresting and detaining undocumented immigrants. So it's notable that despite all of that, once you look at these additional funds that they're about to get, ICE will have spent more money than ever this fiscal year.

Stef Kight covers immigration and politics for Axios.

NIALA: We know friends help us get through the tough times and sweeten the good times. To all of my closest friends who listen to Axios Today every morning, I’m talking about you! But in the U.S., data shows we often prioritize family and work over friendships, sometimes to our own detriment. According to a recent YouGov survey 27% of millennials say they don't have any close friends and 22% of millennials say they have no friends at all.

Axios’ Erica Pandey has been reporting on this. Erica, what’s behind these numbers?

ERICA PANDEY: Thanks Niala. Yeah I was really surprised digging into this data that Americans are having something of a friendship crisis. This matters because research shows friendships are a critical part of our mental health and living overall healthier, happier lives.

JEFF HALL: Friendship matters for longevity. Friendship matters for happiness. Friendship matters for life satisfaction. Friendship matters for everything that's important in our lives.

ERICA: That's Jeff Hall, a professor of communication studies at the University of Kansas. I reached out for his help digging into this.

JEFF: We work and live in a world where friendship is very, very low down in our list of priorities. So I don't think people think about the idea that they should be actually prioritizing their friendships as something that's worth doing.

ERICA: And Jeff says, it's not just about trying to build as many close friendships as possible, but about making different kinds of friendships: from your close friend of 20 years, to someone you often run into at work, for example.

JEFF: A wider variety of people, they can tell you different information and different perspectives. They can challenge your beliefs in ways that help us grow and learn.

ERICA: So how much time should we actually be putting into our friendships? As it turns out, it can literally be broken out by the numbers.

JEFF: So the first layer is to become from an acquaintance to a casual friend, and that takes between 40 and 60 hours. And then somewhere between a range of 80 to a hundred hours. And then really closer, best friends emerge closer to 200 plus hours.

ERICA: But this doesn't have to be 200 hours of sitting face to face and engaging in deep conversations. So many kinds of interactions count. For example, some of my closest friends are friends I made at work. And the first 100 hours that we clocked in together were just sitting across from each other in a communal office and chit chatting here and there. All of that shared time counts and helps you become closer as friends. And those friendships have been so important for me as I've transitioned to working hybrid or even mostly remote during the pandemic. The fact that we had that time together, that we built those friendships, just made all the difference.

NIALA: Erica Pandey writes the daily Axios Finish Line newsletter.

That’s it for us today! You can reach our team at podcasts at axios dot com or reach out to me on twitter. You can also text me at (202) 918-4893.

I’m Niala Boodhoo - thanks for listening - stay safe and we’ll see you back here tomorrow morning.