‘Middle class, low-income households worst hit by inflation’

The inflation crisis is reducing the purchasing power of the middle class and hitting low-income households particularly hard, a new report from the International Labor Organization (ILO) said.

In its “Global Wage Report 2022-2023: The Impact of inflation and COVID-19 on wages and purchasing power,” the ILO said the global monthly wages fell in real terms to minus 0.9 percent in the first half of 2022 – the first time this century that real global wage growth has been negative.

Among advanced G20 countries, real wages in the first half of 2022 are estimated to have declined to minus 2.2 percent, whereas real wages in emerging G20 countries grew by 0.8 percent, that is 2.6 percent less than in 2019, the year before the COVID-19 pandemic.

“The multiple global crises we are facing have led to a decline in real wages. It has placed tens of millions of workers in a dire situation as they face increasing uncertainties,” ILO Director-General Gilbert Houngbo said in a statement.

He added, “Income inequality and poverty will rise if the purchasing power of the lowest paid is not maintained. In addition, a much-needed post pandemic recovery could be put at risk. This could fuel further social unrest across the world and undermine the goal of achieving prosperity and peace for all.”

The report noted that inflation has a greater impact on low-wage earners. “The cost-of-living crisis comes on top of significant wage losses for workers and their families during the COVID-19 crisis, which in many countries had the greatest impact on lowincome groups.”

It said that rising inflation has a greater cost-of-living impact on lower-income earners. “This is because they spend most of their disposable income on essential goods and services, which generally experience greater price increases than non-essential items.”

The ILO report also said that inflation is biting into the purchasing power of minimum wages. Estimates showed that despite nominal adjustments taking place, accelerating price inflation is quickly eroding the real value of minimum wages in many countries for which data is available.

The ILO stressed the urgent need to apply well-designed policy measures to help maintain the purchasing power and living standards of wage workers and their families.

“Adequate adjustment of minimum wage rates could be an effective tool, given that 90 percent of ILO member states have minimum wage systems in place. Strong tripartite social dialogue and collective bargaining can also help to achieve adequate wage adjustments during a crisis,” it added.

Also recommended among other policies that can ease the impact of the cost-ofliving crisis on households are measures that target specific groups, such as giving vouchers to low-income households to help them buy essential goods, or cutting value added tax on these goods to reduce the burden of inflation on households while also helping to bring down inflation.