Inflation frustrates people by eroding their purchasing power and quality of life — a paycheck that once covered monthly expenses now falls short as prices climb across the board. The last inflation was no different. In 2022, inflation in the U.S. peaked at close to 9 percent, while nominal wage growth was often closer to 6 percent (these figures vary by sector and source, but that’s the rough ballpark). Data from the Bureau of Labor Statistics (BLS) indicated that real average hourly earnings were down by around 3–4 percent at various points in 2022 compared to the prior year — one of the steepest real-wage declines in decades. This meant that even though people’s paychecks were larger in dollar terms, they could buy less with their money than before.

But here is another reason to be super annoyed with inflation: While workers’ wages lag behind rising costs, the government benefits from inflation through increased tax revenues, both from higher nominal incomes pushing people into higher tax brackets and from taxes on inflated prices. This phenomenon, known as bracket creep, effectively transfers wealth from citizens to the government coffers without requiring explicit tax legislation. How much? Well, looking at the higher-than-projected after the adoption of the Tax Cuts and Jobs Act of 2017 growth in revenue in 2024, the Committee for Responsible Budget explains:

Roughly two-thirds of the higher-than-projected revenue — about $1 trillion out of $1.5 trillion — can be explained by higher nominal revenue due to inflation rather than increases in real (inflation-adjusted) revenue.

So here you go. Inflation produces lower real wages and puts more money in the government’s pocket.