Possibly. But "inflation" is a slippery concept. It is often published as a single number but it is not. Prices do not rise in the same way for all people. Relative costs and prices across the things money is used for. A poor family is buying different things from a middle class one.
Nominal wages matter a lot. And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom.
Nominal wages are almost completely irrelevant, that is why real wages exist as a concept.
Inflation is slippery but arguing that nominal wages matter is pushing it too far. The official inflation rate is a polite fabrication in the sense that strictly speaking there aren't a lot of people who experience the official inflation rate in a year. But it is measuring an all too real effect that needs to be factored in to everything to have a serious debate about what is happening in the real world. I'm not even sure how to rebut the idea because I don't know any arguments in favour of using nominal wages over real that aren't straw man arguments.
> And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom.
I'm not totally sure I'm reading this right, but I assume you mean nominal prices for people who are poor. If so, this is a horrible idea. Nobody but nobody should want to raise the real or even nominal cost of living for poor people. It is obviously a brutal thing to do, and as a social group they don't command enough money to get a worthwhile effect from squeezing them.
> But it is measuring an all too real effect that needs to be factored in to everything to have a serious debate about what is happening in the real world.
Well, sort of. The major thing this doesn't apply to is borrowed money. If both prices and wages increased by 10% then adjusting for inflation you would say there has been no gain, but tell that to the person with a mortgage or student loans who is now paying back the same nominal principal amount while earning more nominal dollars.
Counter well sort of (and I'm going to be very US-centric here because they lead the show) - Fed interest rates have been following a pretty visible downtrend for the last 40 years [0]. M2 growth looks quite predictable [1] and the amount of all this that seeps down to consumers seems quite consistent [2].
After 40 years, it seems likely that the lenders have identified all this and are accounting for what is happening in their lending policies. The borrowers would enjoy the feeling of the loan lightening, but their loans would have had a little heaviness built in already in anticipation of rates being lowered.
Looking at [0], I'd lend on the assumption that rates are heading back to 0 in the next 5 years, even though interest rates have been ticking up for years. I'm sure the banks have a more sophisticated model, but the trend is a bit too obvious now.
Correct, if the interest rate is fixed. Otherwise the same market forces captured by the inflation rate is also pressuring the interest rate paid on loans.
Put simply, if tomorrow’s money is worth less than today’s money, interest rates must increase correspondingly.
That's assuming interest rates are set by the market rather than the Fed. In the latter case it's often the opposite which is true -- the Fed sets a low interest rate which in principle causes inflation and wage growth as people borrow money and spend it.
Moreover, the bank doesn't care that much that you're paying back the loan in less valuable money because they never actually had the money they loaned you to begin with. Having money in a bank account is you loaning the bank money, taking out a loan is the bank loaning you money, so as long as the money they loaned you is still in somebody's bank account they just cancel out. It's the person holding the cash in their account, not the bank, who is eating the currency devaluation.
Nominal wages matter a lot. And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom.
This is a contradictory argument. Real wages are the standard. If prices aren't changing much, then nominal wages are close to real wages and so they can't matter a lot as separate factor. The way nominal wages could matter is just if they are distinction from real wages and are able to give a (false) psychological feeling of wealth (things that go under the "wealth effect").
Standard for what? What are real wages? There is no "real wage" that can be compared across sectors very meaningfully.
What really matters is access to the resources needed to live a fulfilled and healthy life. "Real wages" as measured by discounting nominal wages with a number called "inflation" is a indication of that access. It is imperfect because the measure of inflation is far from perfect. Duh!
Social policy matters much more. Does society care about housing, education, health care, nutrition...? In many places accommodation cost inflation has wiped out many families. Proper housing policy would knock that on the head but in anglophone countries (and now it seems in West Germany too) it has been abandoned. But this study is not about that.
Back to the point: Incomes matter. Wages are one indication of income. Purchasing power matters. Real wages are a indication of that. But a lot else matters. And studying nominal wages on their own is not a pointless task. Nominal wages can be compared across all sectors that use the same currency. Inflation, as a single number, can not. So looking at the changes in prices people face would be interesting too. But that is not what this study is about.
Nominal wages matter a lot. And these days prices are not moving much and it is recognised that it is very important that they go up, a lot, for those at the bottom.