As of June 7th, 2024 we find ourselves in the midst of a multi-year inflationary cycle.

Regardless of its duration, you can be certain this won’t be the last inflationary period you experience. And given the cyclic nature of economics, we thought it a good idea to offer you timeless guidance that applies to inflation.

Here’s how to navigate inflation, secure your job, and even prosper with promotions and raises.

Whether you’re reading this now or in the future, this advice will remain relevant…

What Is Inflation?

Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.

Or in simpler terms, it is “too much money chasing too few goods”. Because of this dynamic, each unit of currency buys fewer goods and services – meaning, your income loses its value.

Keep in mind, inflation is a fundamental economic concept that can impact every aspect of your financial life, including your career.

That’s why understanding inflation is crucial. It’s not just about rising prices; it’s about understanding how these changes impact your purchasing power, the job market, your competition, your employer, your savings, and your overall financial direction.

It also presents some very unique opportunities. Let us explain…

Current Inflation Landscape

Inflation in the US, as well as the rest of the world, has been quite turbulent over the past years, especially following the pandemic.

The monthly 12-month inflation rate in the US from March 2020 to March 2024 peaked at 9.1% in June 2022 and is now around 3.5%. This is high: 455% to 175% higher than the target rate.

You should know: The Federal Reserve targets a 2% inflation rate, which they consider optimal for a healthy economy (Federal Reserve FAQ on the economy). Many economists argue that this rate helps stimulate economic growth. However, since it’s not possible to conduct controlled studies in macro-economics (we don’t have that many worlds to experiment on), this target is much more of a policy decision than a scientific certainty.

Whatever the truth behind inflationary targets may be…

What’s more critical for you to understand is that, despite what politicians proclaim, inflation appears to be persistent. It has been hovering between 3% to 4% for over a year, which is considerably higher than their already high “target”.

In other words, it looks like it’s going to stick around.

This means, recognizing and preparing for ongoing inflation will give you an advantage.

How Inflation Impacts Business

Inflation is bad for business.

As prices rise, the cost of goods and services increase, squeezing profit margins and putting pressure on employers to raise wages. This can lead to a ripple effect throughout the organization, hurting employee morale, increasing attrition, and making it more expensive to retain talent.

Key Points:

  • Reduced Purchasing Power: Inflation reduces the value of money, making it harder for businesses to maintain their purchasing power.
  • Wage Pressures: Armed with the excuse of “rising cost of living”, employees demand higher wages. As a result, inflation increases labor costs.
  • Rising Company Costs: Higher wages, combined with increased costs for materials and services means – all business costs rise.
  • Companies Need to Cut Costs: With rising costs, companies find themselves needing to cut costs. They get stuck between a rock (employees want more) and a hard place (need to cut costs).
  • Impact on Morale and Turnover: It’s very challenging to deal with these wage pressures during an inflationary cycle. Many companies can’t do it. This hurts employee morale and can cause higher turnover rates as workers seek better-paying opportunities elsewhere.
  • Talent Attraction and Retention Challenges: Ultimately, during inflationary cycles, businesses struggle to attract and retain top talent, unless they offer competitive wages.

Strategic Insight:

Understand that businesses are under pressure. They face increased costs for materials, transportation, and labor. This means they are forced into a situation where they are more open to negotiation for raising your salary, while they are simultaneously looking for ways to cut costs.

These two seemingly contradictory things can indeed be true at the same time. And it can be resolved by: getting rid of some workers to pay other workers more.

This means: Watch out for layoffs and mass firings. Your primary goal during an inflationary cycle is to make yourself indispensable.

Inflation and Wage Growth Dynamics

Due to the interplay outlined above, we get some very interesting movement in wage numbers…

From April 2021 until February 2023, the rate of inflation exceeded the growth of wages, marking a concerning trend. This reversed in February, and from February 2023 to March 2024, wages grew faster than inflation, with inflation hovering at 3.5% while wages grew by 4.7% (source).

In other words – on the surface – the story is: Inflation spiked, wages couldn’t catch up for a while, and now wages are growing again, and growing faster than inflation.

Of course… That’s just what’s on the surface…

While almost no one likes inflation, and wage growth is positive, reports like “average wages have surpassed inflation for 12 straight months” should be interpreted carefully.

  1. Short-Term Perspective: While it’s true that wages have surpassed inflation in recent months, this narrative overlooks the broader trend of inflation consistently outpacing wage growth for a significant period.
  2. It’s Expected: This type of wage growth might simply be an expected reaction to the inflationary pressures companies were, and are, experiencing, rather than a positive economic development. It’s like a fever following an infection: wage increases follow inflation as companies try to hold onto employees.
  3. Real Wage Growth: Numbers can be deceiving, especially when considering the concepts of nominal vs. real wage growth. Real wage growth refers to wage increases adjusted for inflation, providing a clearer picture. For instance, consider this scenario: In March 2019, your real wage growth was 1.6%, indicating an increase in your purchasing power after accounting for inflation. However, by March 2024, your real wage growth dropped to 0.6%. This means that your wages grew at a slower rate compared to the pre-pandemic period, representing only one third of the growth earlier. In essence, while nominal wage increases may seem positive, it’s essential to consider inflation adjustments to understand the true impact on your standard of living.

Strategic Insight:

Don’t get caught up in the short-term hype of wage growth beating inflation. Sure, it’s a good sign, but the fight is not over and the cheers are misleading..

In fact, during inflationary periods, it’s a good bet to assume that the cheers will always be misleading!

Start by mastering the art of negotiation. Don’t settle for mediocre raises – push for more, and don’t be afraid to sell yourself. And if you’re not getting what you want where you are, it might be time to jump ship and find a company that values what you bring to the table.

Inflation’s Impact on the Job Market

Inflation isn’t just about rising prices – it’s also a game-changer in the job market, influencing every career move you make.

According to a report by FlexJobs, a staggering 80% of individuals acknowledge the profound impact of inflation on their career decisions (FlexJobs Report). And it’s no wonder…

When prices soar people worry. And suddenly, staying put doesn’t seem so appealing – especially since retention budgets tend to be chronically lower than acquisition budgets; meaning, you can get paid a lot more if you switch jobs.

Strategic Insight:

You can negotiate assertively for higher salaries, especially when switching employers. But don’t be penny wise pound foolish…

Consider the fact that employers are both seeking to cut costs during inflationary cycles while they are also particularly hungry for acquiring new talent; stuck in that rock and hard place we described above. In such an environment, it may be a better to think long term.

Instead of asking for the biggest salary you can get, you might consider exploring opportunities for performance-based bonuses or profit-sharing arrangements. Or even, more creative contracts.

Specifically: you can lock yourself into better employment contracts by sacrificing your immediate short term earnings for tremendous long term gain. For instance, the short term financial respite you give your employer by taking a reasonable, or even lower salary, can return to you in other ways like instant promotions, or unusually large stock options. Better titles, better bonuses, more stock options, or even golden parachutes (i.e. severance contracts) can be put on the table in the employer’s time of need.

Four Pillars to Grow Your Career During Inflation

To navigate and thrive during inflationary periods, consider these four strategic actions:

1. Ask for a Raise

Rising prices and a competitive job market make it an ideal time to negotiate for higher pay. Highlight your contributions and the increased cost of living to justify your request (must read article). Be prepared with data on industry salary trends and a clear outline of your achievements.

Actionable Steps:

  • Research Salaries: Use resources like Glassdoor, Payscale, and industry reports to understand current salary benchmarks.
  • Document Achievements: Keep a detailed record of your contributions and successes. Think of it like invoicing a client; be detailed.
  • Prepare Your Pitch: Practice negotiating and be ready to present your case clearly and confidently.

2. Upskill Continuously

Invest in learning new skills that are in high demand, especially during inflationary periods. Due to the fight for labor, inflationary periods result in “lowering of the skill bar” for a variety of high-skilled jobs.

This makes you more valuable to your current employer and more attractive to potential employers. Focus on areas that complement your existing expertise and open new career pathways.

Actionable Steps:

  • Identify Skill Gaps: Evaluate your current skills against job postings and industry trends.
  • Enroll in Courses: Platforms like Google, Coursera, Udemy, and LinkedIn Learning offer affordable and relevant courses. We offer courses in soft-skills and career-skills that are designed to help you get better jobs and promotions.
  • Seek Certifications: Obtain certifications that are recognized in your industry to enhance your credibility.

3. Pursue Promotions

Position yourself for promotions by taking on more responsibilities and demonstrating leadership. You want to make your promotion inevitable.

Keep in mind, career advancement often comes with significant pay increases and is much more lucrative than merely asking for a raise. It’s well worth the extra effort.

Actionable Steps:

  • Identify Opportunities: Look for gaps or areas where you can add value, and where that value can be publicly recognized.
  • Build Your Career Narrative: Your “career narrative” is the real psychological driver behind your organizational positioning and subsequent promotions. Learn about it. Master it.
  • Connect with Benefactors: Benefactors are individuals who have power in your organization that can help you get promotions. We discuss them at length in Executive Ascent.

4. Be Prepared to Move

Stay open to relocating for better opportunities. Geographic flexibility can be a significant advantage in a tight job market. And considering remote work trends, you may not even have to move physically!

Actionable Steps:

  • Research Job Markets: Identify regions with a high demand for your skills.
  • Cost of Living Analysis: Compare living costs in different areas to find the best financial balance. (Companies pay you based on where they are, and not necessarily where you are. That being said, you will need to persuasively negotiate, if you ask for California wages from a California company while living in Wyoming.)
  • Relocation Packages: Negotiate relocation packages with potential employers to cover moving costs. (Pro Tip: saving them $30k on a relocation package is a great way to get into remote work arrangements.)

Conclusion

Inflation is an inevitable part of economic cycles.

If you don’t pay attention to it, your purchasing power will decrease, and your career will go on as usual.

But if you do pay attention to it, and understand it’s mechanics, it can give a tremendous boost to your career development.

You can secure your job, advance your career, and even prosper during inflationary periods – as long as you take the right actions.

Focus on increasing your value, negotiating effectively, and staying adaptable.

And above all else: THINK LONG TERM!

Those of us that have, are laughing all the way to the bank…