> Let’s assume that you are being paid $100,000 a year after taxes and you spend $50,000 of it. Well, if inflation hits 10% over the next year, your basket of goods will now cost $55,000 (i.e. $5,000 more) to purchase. How much does your $100,000 salary have to go up to offset this? 10%? Nope. It only takes 5% (i.e. $5,000) for you to break even. This is half the rate of inflation.
That's still not good enough, because even though a raise of 5% would allow one to save the same amount of money, under inflation the money saved is worth less. In fact, to preserve the same purchasing power both in the present and in the future, salaries should be raised exactly as much as inflation.
It also assumes all you want your salary to do is help you survive the current calendar year. If we follow their assumption, I have 5k less going towards retirement, savings, or contributions to child care - which is, you'll be shocked to find, a 10% decrease!
It's not like dollars I _didn't_ spend expired, their value was diminished, as was the value of every dollar I'll earn tomorrow, and therefor I'm within my rights to expect more of them.
That's still not good enough, because even though a raise of 5% would allow one to save the same amount of money, under inflation the money saved is worth less. In fact, to preserve the same purchasing power both in the present and in the future, salaries should be raised exactly as much as inflation.