Gross salary reduction on the island | finance

The island’s rising inflation has riven the pockets of low- or middle-income consumers; Income that continues to be undermined by the rising costs of basic materials and services, such as food and fuel, and utilities such as water and electricity.

“This is the perfect storm. Higher interest rates and hyperinflation. LPeople get the same salary with more expensive products, so their income goes down. They are looking for ways to save and reduce their expenses, for example, with public transport or “pool cars”. Others go to work every day in the office, but ask their employers to help get petrolKenneth Rivera, Certified Public Accountant (CPA), explained about what he observes among his clients and relatives.

According to Rivera, the hit will soon be felt in home purchases and loans, such as personal loans, auto loans and mortgages, because the average worker will have less budget to buy goods and bear interest on borrowing, after compensation. This will not be enough to cover your basic expenses.

about this subject , Roy Delgado ZiasFormer Secretary of the Ministry of Labor and Human Resources, Realizes that although the increase in credit by the Federal Reserve (FED) seeks to start lowering prices and stabilizing the economy, the scenario would be complicated for people on low incomes. He emphasized that while some employees are getting an extra $1.25 an hour increase in the minimum wage (from $7.25 to $8.50), it is not enough due to high levels of inflation, so employees will need a larger increase in their compensation. take altitude.

“Inflation devours the increase in the minimum wage and reduces consumption, which is what we already see on unfilled streets, because car trips go down due to the cost of petrol. There are fewer visits to stores with lower purchasing power,” the former secretary said.

Statistics

According to data from the Atlanta Fed Salary Growth Tracker, Wages for full-time workers at large employers rose about 5% in the 12 months through May 2022.

However, data from the US Bureau of Labor Statistics indicates that Inflation caused wages to fall by an average of 3.5% in the vast majority of sectors.

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Moody’s Analytics estimates that the result of higher prices means consumers have to spend about $460 more than the same period last year on the same products and services.

The effect of higher wages

zias understands The increase in the salaries of employees makes them buy more and improves the economic activity of the islandbut for small businesses, it won’t be easy, as they face huge challenges to stay afloat.

“Small (businesses) will have to implement austerity measures, such as reducing working hours or laying off employees, because costs, even for oil-dependent manufacturers, are out of control. These are factors that are not in the hands of Western countries.

Dean of the Department of Business, Tourism and Entrepreneurship at Ana G. Mendes University, John Sosaalso He believed that the impact of inflation and interest rate hikes would negatively affect small businesses.

Small and micro businesses will have to make decisions to manage operating costs and maintain their profitability under inflation because there will be less consumer spending. Sosa stated that they should adjust their business models.

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Companies and other large sectors such as restaurants will have to raise wages and offer better offers to retain their employees and ensure that they do not go to other industries with better compensation and benefits.

Consumer mentality

Having a salary that is not enough to cover the monthly expenses in the scenario of uncertainty about the future is a reason for the consumer to stop or postpone his purchases. This aligns with a University of Michigan study that found that real disposable income per capita could experience the largest annual decline since 1932.

“This is psychological behaviour. If people understand that inflation will continue, it will hold and there will be low consumption. Decisions are made based on a pessimistic perception. If Russia decides to reduce its weapons, better expectations will be created and markets will react, like the stock market,” Sosa said.

The researcher also emphasized that there are at present many assumptions and guesses that will continue to affect the local and global economy.

“We see a lot of speculation and we see it in the fall of cryptocurrencies, everything is connected. Sosa concluded that it is very difficult to keep the corporate economy, consumers and the country afloat.

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