This depicts year-on-year changes in hourly and weekly real wages. Real, as opposed to nominal, figures are adjusted for inflation. Deflating the earnings allows us to compare historic prices in today's dollars—apples to apples, instead of apples to apples covered in rising oil prices.
From the article:
Since last October take-home pay has been contracting for about 80 percent of the American workforce, including factory workers and non-managers in service businesses.
Although the author allows that the "blame lies with a combination of slower wage growth and higher inflation," the article does not address the data driving the fall—exactly 1% (contra to the graph) or 18 cents (in January 2008 dollars)—which is high inflation to the tune of 4%. Nominal wages grew by 3.7% year-on-year; if we were experiencing inflation more in line with the norm—say, 2007's average of 2.85%—real growth would have been positive. Instead, inflation, particularly over the last three months, has been sufficiently high to cancel out the nominal growth.
Four percent isn't 1974 (11%) or Zimbabwe (66,212%), but there are troubling parallels with the former. Are we looking at a sustained period of both inflation and depressed growth—the dreaded stagflation? My money is on the recession but not the inflation, but there are a lot of unknowns. Zimbabwe's problems are easier: Long-term inflation is always and everywhere a monetary phenomenon, so lay off the printing press.
To the rescue, Chairman Bernanke today signals he is open to more rate cuts. Err, wait. That won't help. Ah, but look over here: The FOMC finally acknowledges via its semiannual congressional report that it has an informal inflation target of 1.5 to 2.0% core over three years and slightly less over the long-run. That should aid in restoring the Fed's inflation hawk credentials. Now is decidedly not a fun time to be Fed Chairman.