Personal Income: Gains Disappear with Inflation 

By at 30 October, 2022, 1:49 pm

by Raymond J. Keating –

The latest report on personal income from the U.S. Bureau of Economic Analysis pointed to continuing woes on the income front, with inflation making income gains disappear.

It was noted that personal income grew by 0.4 percent in nominal terms in September. Most of that, however, was eaten away by 0.3 percent inflation, as measured by the PCE (personal consumption expenditures) price index.

Much the same occurred with disposable personal income (i.e., personal income less personal current taxes), with a nominal gain of 0.4 percent turning into no gain in real terms.

As SBE Council has noted before, the most important measure coming out of this report is real per capita disposable personal income, which are the real dollars individuals have to use for consuming, savings and investing. The following chart makes clear that inflation since early-mid-2021 (clear of pandemic income support subsidies) has diminished real per capita disposable income.

In fact, real per capita disposable income in September 2022 ($45,389 in 2021 dollars) actually was below the pre-pandemic February 2020 level ($45,948 in 2021 dollars). As long as disposable income suffers, that is a result of and fuel to ongoing economic troubles.

One final point of hope: It’s worth noting that while still running too hot, inflation as measured by the PCE price index has calmed some, running at an annualized rate of 3.6 percent over the past two months, and actually at about only 2 percent over the last three months. Let’s hope that this is a signal of improvement, rather than just another case of volatility within a high-inflation environment.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.


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