Societal Standard of Living Inflation

In economic terms, inflation is defined as "a general increase in prices and a fall in the purchasing value of money." A more detailed explanation can be found on Investopedia.

Inflation is a real concern in today’s economy, but its impact varies based on income level. For those with higher earnings, inflation erodes the value of savings and reduces the real returns on investments. When inflation outpaces the interest rate on savings, money loses its purchasing power over time. Additionally, inflation increases borrowing costs, meaning investments and projects require a higher rate of return to justify expenditures.

For those living paycheck to paycheck, inflation has a more immediate and severe impact. Inflation erodes purchasing power, making it harder for consumers to keep up with rising costs. If wages do not rise at the same rate as inflation, workers struggle to keep up. This is especially evident with the current federal minimum wage, which has remained at $7.25 since 2009, despite rising living costs.

A report from EPI outlines the effects of raising the federal minimum wage to $15/hour. However, what is often overlooked is the impact on the supply side of the economy. Higher wages increase workers’ ability to purchase essential goods and services they previously could not afford, such as healthcare. But simply raising wages does not increase the supply of goods and services to meet this new demand. When demand rises without a corresponding increase in supply, prices increase, leading to further inflation. In this scenario, wage increases simply push the price curve higher without solving the root problem.

A more effective solution is to tie wages to inflation, adjusting them frequently to reflect real-world price changes. The SSOL accomplishes this by indexing wages to the cost of a specific, essential basket of goods and services required for basic survival. If the cost of these necessities doubles, the SSOL wage doubles. If prices drop by a third, the SSOL wage decreases accordingly. Unlike broad government inflation metrics, SSOL is directly linked to real living expenses.

SSOL focuses only on the cost of essential goods and services—non-essential items like baseball gloves or knitting needles have no impact. However, if gas prices increase by $0.10, SSOL adjusts accordingly.

And with Part 2, SSOL introduces an incentive to increase supply in response to rising demand, helping suppress wage-driven inflation. Because SSOL wages increase only when the cost of essential goods rises, businesses have a direct incentive to keep those costs low. Rather than simply raising prices to absorb wage hikes, businesses are encouraged to invest in efficiency, automation, and expanded supply to stabilize costs. This prevents inflation from spiraling out of control while ensuring workers can always afford the basics.