How inflation is changing the 2022 annual employee pay raise equation

• Compensation surveys of employers show that pay raises for 2022 will increase more than in recent years, but in the low 3% range, not nearly as much as the current level of headline inflation in the U.S. economy, which has reached 6.8%.
• Companies are continuing to monitor inflation and evolving data suggests that there is still room for wages to move up more significantly next year.
• The good news: 99% of employers are planning raises, according to one survey. The bad news: there are multiple reasons why firms don’t set pay to directly match inflation.

The Great Resignation is occurring amid rising inflation, and as employers face the tightest labor market in recent history, how much to raise employee pay in 2022 is a challenge. Corporations are generating record profits, and workers are being pressed to keep up with rising costs for basics including food, gas, cars and housing. But that doesn’t mean the level of wage gains next year will match the current hot inflation.

The latest inflation reading from the Consumer Price Index came in at 6.8%, the highest year-over-year increase since 1982. While the fourth quarter CPI reading could mark an inflation peak, projected pay increases from employers for next year are only about half the current level of price increases.