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Inflation and Salaries - what HR managers should know

Inflation and Salaries - what HR managers should know
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Human resource (HR) managers face a difficult balancing act when it comes to salaries: On one hand, no employer wants to pay more than necessary for talents and positions. On the other hand, staff must feel that their salary is competitive in order to stay motivated and happy with their current career choices

Staying up-to-date on inflation and salaries can help HR managers make sure they are offering competitive salaries while keeping costs in check.


Inflation is a measure of the rate at which prices for goods and services rise over time. It is important to understand how inflation affects salary decisions, both for existing staff as well as for new hires. In order to make accurate decisions about salaries, HR managers should be acutely aware of inflation rates, both nationally and locally.

It is also important to consider how inflation reflects wage growth. If a company fails to adjust salaries upwards in line with the cost of living, staff may start looking elsewhere for employers who can offer more competitive pay. After all, if their wages cannot keep up with inflation, they will inevitably be worse off in the long run.

Despite everyone currently talking and worrying about inflation, most people don't have a good working knowledge of how inflation really works and what it does to wages.

 Inflation and salaries is fundamentally a question of company vs employee finances

Source: Pixabay

Why understanding inflation and salaries is an important part of being an HR manager

Inflation is an important factor to consider when making salary decisions for a company. HR managers need to understand the impact of inflation on a business’s budget and its employees' wages in order to make informed decisions about their organization's compensation policies. Inflation affects purchasing power and can have an effect on employee morale, so it is important for HR managers to be knowledgeable and proactive in addressing rising costs.

Inflation has a direct effect on salaries, as it affects the amount of money that is available to pay employees. If prices are increasing, but wages aren’t, then spending power diminishes as people have less money to buy basic goods and services. This can lead to lower morale and job dissatisfaction, which can ultimately lead to higher turnover rates. Therefore, HR managers must be aware of the current rate of inflation and look for ways to adjust salaries accordingly in order to remain competitive with other organizations and keep employee morale high.

Inflation also affects how much money a company has available to pay its employees. When inflation increases, companies typically have to pay more for goods and services. This means that some of the money available for employee wages must be redirected to purchase materials or increase operational costs. Knowing this, HR managers need to be able to calculate the potential effect of inflation on a company’s budget in order to make informed decisions about how much they can offer their employees in terms of salary and other benefits.

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Inflation and salaries are fundamental HR knowledge

Overall, understanding inflation and salaries is an important part of being an HR manager. It is essential to be aware of current inflation rates, how they can affect employee salaries, and how a company’s budget might be affected by rising prices.

Having this knowledge helps HR managers make informed decisions about how to best adjust salaries and other benefits in order to keep employees satisfied and competitive with similar businesses. It is important for HR managers to pay attention to the current rate of inflation so that they can proactively address any potential issues before they become a real problem.

With that in mind, below are some of the key things HR managers should know about inflation, how it works, and how to approach conversations with employees.

Understand the basics of inflation

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured by the Consumer Price Index (CPI) which tracks changes in the cost of a basket of goods that are typically purchased by consumers. As prices increase, purchasing power decreases, meaning people have less money available to buy goods and services.

Be aware of current inflation rates

In order to make informed decisions about their organization’s compensation policies, HR managers need to keep an eye on the current rate of inflation. This can easily be done by referring to the CPI which is released regularly by the Bureau of Labor Statistics in the United States.

Talking about inflation and salaries can be sensitive

Source:  Pixabay

Determine how inflation affects the company’s budget

In order to accurately assess the potential impact of inflation on a business’s budget, HR managers need to consider both direct costs such as materials and overhead expenses, as well as indirect costs such as employee salaries. This will help them determine how much money is available to pay employees, and if any adjustments need to be made in order to remain competitive with other businesses.

It's vital for HR managers to leverage their relationships with other managers in different departments to track how inflation is affecting their organization as a whole. This allows them to assess the potential impact on salaries and other benefits, so they can make informed decisions about how to approach conversations with employees.

How to balance company and employee expectations

During periods of sustained high inflation, it is common for employees to demand higher salaries in order to keep up with the rising cost of living. While it is important for businesses to remain competitive and offer employees a fair wage, it is also important to consider the company’s budget when making these decisions.

HR managers should approach salary conversations with an understanding of inflation and salaries, being sure to emphasize how the company is doing its best to balance employee expectations and the company’s budget.

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What the competition is doing

It is crucial that HR managers know how competitors in the industry are responding to inflation. Doing research on wages and other benefits of competitors can provide valuable insight on how to adjust a company’s compensation policies in order to stay competitive.

People will absolutely consider leaving an organization if they think the purchasing power of the money they make will be better protected elsewhere. HR managers need to be aware of this, and make sure they are providing their employees with competitive salaries that account for inflation.

Alternatives to salary increases

If a company is in a tough fiscal situation without the cash to increase salaries in the face of inflation, it's important for HR managers to be aware of and discuss other options with employees.

These could include things like bonuses, additional vacation days, flexible schedules, and other forms of compensation and appreciation that can help maintain employee satisfaction without breaking the budget.

Ultimately, HR managers should strive to keep their organization’s compensation policies competitive in order to attract and retain top talent. Staying informed on current inflation rates and understanding how it affects the company’s budget will help them to make sound decisions about salaries and other forms of compensation. With this knowledge, HR managers can ensure their employees are being fairly compensated during periods of high inflation.


By understanding inflation, staying up-to-date with the current rate and being equipped with a working knowledge of how it affects the company’s budget and employee morale, HR managers can make informed decisions about how to best adjust salaries and other benefits in order to keep employees satisfied and competitive.



Author Bio:

 Laura MacDonald has been covering the HR and Organizational Behaviour spaces for over a decade. She loves learning about and explaining new industry developments. When she’s not researching and writing her next piece, she is probably out running with her dogs. 


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