How much of a salary hike do you need each year just to keep pace with inflation?

Answer 1

Generally, you need the same rate of increase or decrease in your salary as the inflation rate. If you make 10,000 and inflation is up by 10% you need to make 10% more so your purchasing power remains on par.

More:

Depending on your income tax situation, you may need a somewhat larger increase than the inflation rate. This is because your expenses are "post tax" while your income is "pre tax", your "marginal" tax rate is higher than your average tax rate, and as your income increases you may move into a higher tax bracket.

Plus your personal inflation rate may be larger than published rates, in which case you would also need a larger increase. (Try this one on your boss :-)

Another view

Inflation is all prices going up, and deflation is all prices going down. Watch the Consumer Price Index or the Implicit Price Deflator to watch for how much their is in the country. Inflation is a monetary issue. Basically increasing the quantity of money will increase inflation, and visa versa for deflation. Prices rising and falling over all goods and services reflect the money supply with the dollar as the common demominator. So one dollar equals....what ever goods. However to know what the dollar is worth, that's all goods and services. Much harder to do.

So your part of the country, may have rising prices and no inflation. The dollar is still worth the same around the world. However, your neck of the world may have rising costs like property values, taxes, fuel, or many other things. As such to maintain your standard of living, one will evalutate those costs into their budgets.

Now, wages may be going in oposite direction of the local economy. Oddly in Russia when the USSR was broken up, Doctors were the worst profession, nobody could afford one. So any profession can become over priced and fall independent of inflation or rising costs to live in. Moscow was the most expensive city to live in reciently.

In Michigan we see taxes from local governements, state government, and insurance costs, fuel costs and many services rising. However the UAW took a huge pay cut. The UAW lead the state in wage rates for decades. Nobody charged more than what they made, but not so today. Interesting to ponder why the other unions have not followed suit like they always have. I guess they will find new reasons for raising pay rates above the national averages even though Michigan is below average now in national pay rates. However many government employees are paid well above the national average. Can Michigan sustain that without serious loss in programs?

As a football player or other specialized people, they seem to be rising well above inflation. Inflation really is independent of wage rates. Wage rates are competitive to other wages rates. IE, unskilled labor competes versa other unskilled labor, and companies compete verses other companies, but neither competes against each other.

Further reading on this is found with the old Scottish school of economic theory, "Labor Theory of Value", by its founder Adam Smith. Carl Marx checked and ended this idea since if labor created value why have leadership, only labor is needed. So read up on the economic meaning or theory of "Value". That probably has more to do with this question. I particularly like Von Mises of the Austrain School of economic theory in his book "Human Action".

Basically, the rate of salary increment should be at par with the inflation rate