Inflation is soaring. What does that mean for salary and raise negotiations?

From shopping for groceries to dining out, Americans’ wallets took another hit as inflation rose for the seventeenth consecutive month in April. The silver lining? That undeniable data may be an advantage in upcoming salary negotiations.

As consumer prices soar — with energy costs up 30.3% and food prices up nearly 10% in the last year, according to the Bureau of Labor and Statistics — employers are also feeling the heat. According to BLS’ quarterly Employment Cost Index, wages and salaries increased 5% for the 12-month period ending in March 2022, and the cost of benefits increased 4.1% for the same period. 

But adjusted for inflation, private sector wages and salaries declined 3.3% year over year, while benefits dropped 4% in that same period, points out Bruce Bergman, a regional economist for BLS’ New York-New Jersey Information Office. That’s making it a challenge for workers and prospective employees to effectively negotiate salaries and raises. 

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“It's important to do research to determine what the fair market value is for your skill set and experience,” says Toni Frana, career services manager at FlexJobs, a search platform dedicated to flexible and remote work opportunities.

Bergman suggests that employees arm themselves with the latest cost of living data to create more up-to-date wage proposals that show employers how their earnings stack up against their costs, using BLS’ statistics on real earnings. Released monthly, this data allows employees to view average hourly earnings for their industry and occupation, compared to the Consumer Price Index.

He also points to the ECI as another valuable negotiation resource. “The ECI is an objective measure of changing industry standards [when it comes] to how much employers are spending on wages and benefits,” he says. “Everybody wants to make decisions that are based on facts, and these are clear facts that someone can refer to in a compensation discussion.”

While ECI numbers are averages, the index is still a good tool to help employers and employees gauge what compensation rates will be within their industry, occupational group, and region, Bergman says. Those reference points might change from year to year if, say, an employee starts out fully remote in one region and moves to a different region to work in-person at a future date. 

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But as valuable as it is to come to a compensation discussion armed with data, for employees who will be continuing in a role with an employer, the interactions and conversations that happen throughout the year are equally critical to the success of the negotiation, says Frana.

Regular check-ins empower employees to position themselves for higher raises by making changes as needed to better align with expectations, she say. “It’s not helpful [for an employee] to hear about areas for improvement for the first time during an annual review. Employers should [maintain] a dialogue all throughout the year, at whatever rate and medium of conversation feels appropriate.”