Why a 5% Pay Rise Can Be Worth More Than a 50% Increase

What inflation means for your salary, your spending and your standard of living

Imagine your employer tells you that your salary will increase by 50%. Naturally, you are happy. You start thinking about the bills you can pay, the things you can buy and the money you can save.

Now, suppose the prices of the things you buy have also gone up by 50%. You are earning more, but you may still be able to afford only what you could afford before. 

Your salary has gone up, but you may not be able to afford anything more than you could before.

Now imagine receiving a 5% salary increase at a time when prices are rising by just 2%. Although the increase looks small, your money can now buy more than it did previously.

This is why a bigger salary increase does not always mean you are better off. What matters is not just how much your salary increases, but how quickly prices are rising around you.

The issue is particularly relevant in Ghana, where the government and Organised Labour have agreed to a 9% increase in total remuneration for public sector workers in 2027, comprising an 8% increase in base pay and a 1% allocation for conditions of service. The agreement also provides for a 10% increase in base pay in 2028.

Meanwhile, Ghana’s inflation rate stood at 5.2% in September 2026, up slightly from 5.0% in August but down from 9.4% in September 2025, according to the Ghana Statistical Service.

These figures help explain why a salary increase that looks small on paper can sometimes be more valuable than a much larger one.

How inflation eats into your salary

Suppose you earn GH¢5,000 a month and spend GH¢1,000 on groceries. If the prices of those groceries increase by 20%, you will now need GH¢1,200 to buy the same quantity of food.

You have not bought anything extra. You are simply paying more for what you were already buying.

Now imagine that the prices of transport, electricity, rent and other necessities also increase. Your salary may remain the same, but the money left in your pocket after paying for these things becomes smaller.

That is how inflation affects your purchasing power. It reduces what your money can buy.

It is also why looking at your salary alone can be misleading. You may be earning more cedis than you did last year, but if those cedis cannot buy as much as they used to, you may not actually be better off.

When a 50% salary increase gives you no real gain

Consider a worker who earns GH¢5,000 a month.

The worker receives a 50% salary increase, taking monthly earnings to GH¢7,500. That sounds like a major improvement.

But suppose the prices of the goods and services the worker buys also rise by 50%.

If a basket of goods that previously cost GH¢5,000 now costs GH¢7,500, the worker’s new salary will buy roughly the same basket as before.

The worker has more money, but that money has not provided more purchasing power.

Economists call the amount you earn your nominal income. What that income can actually buy, after accounting for price changes, is your real income.

The difference is important because a salary increase can look impressive without improving your standard of living.

Why a 5% increase can be better than 50%

Now consider a different situation.

A worker earning GH¢5,000 receives a 5% salary increase, taking the monthly salary to GH¢5,250.

If prices rise by only 2% over the same period, the worker’s purchasing power improves. The salary has increased faster than the cost of the goods and services being purchased.

The following examples show how the relationship between salary increases and inflation affects what workers can afford.

Salary increase	Inflation rate	Approximate change in purchasing power
50%	50%	0.0%
30%	50%	-13.3%
5%	2%	+2.9%
9%	5%	+3.8%
5%	8%	-2.8%

Source: The High Street Journal’s calculations. Figures assume salary increases and inflation apply over the same period.

This clearly shows that a 30% salary increase can still leave a worker worse off if prices rise by 50%. Meanwhile, a 5% increase can improve purchasing power when inflation is just 2%.

The percentages alone do not tell the full story. You have to look at both.

What Ghana’s current figures tell us

Ghana’s inflation rate of 5.2% in September provides a useful example of how this works in practice.

The figure means that the general price level was 5.2% higher than in September 2025. It does not mean that prices have fallen by 5.2%. It means prices were still rising, but much more slowly than they were a year earlier.

And not everything was getting more expensive at the same rate.

According to the Ghana Statistical Service, services inflation stood at 8.3% in September, while goods inflation was 4.2%. Housing, water and energy recorded inflation of 10.3%.

This helps explain why some households may still feel financially squeezed even when the overall inflation rate has fallen. A household spending a large share of its income on rent, utilities or services may face a different experience from one spending more on goods whose prices are rising more slowly.

Now consider the newly announced public sector pay agreement.

If inflation remains at 5.2% when the salary increase takes effect in January 2027, the 9% increase would translate into an approximate 3.6% gain in purchasing power, assuming both rates apply over the same period 

If inflation falls, why are prices still high?

This is one of the most common misunderstandings about inflation.

When we often hear that inflation has fallen, we sometimes expect the prices of food, transport and other necessities to come down. But that is not what falling inflation necessarily means.

Suppose a loaf of bread costs GH¢10 and its price increases by 20%. It now costs GH¢12.

If inflation subsequently falls to 5%, the price could rise to GH¢12.60 over the next comparable period, assuming the bread follows that rate.

The price has not returned to GH¢10. It has continued to rise, only at a slower pace.

For prices to fall generally, the economy would need to experience deflation, which is a decline in the overall price level.

This distinction matters because households can continue to struggle with high prices even when inflation is falling. The slowdown in price increases does not automatically reverse the increases that have already occurred.

The real question is what your salary can buy

A salary increase is important, but the percentage announced does not tell you everything you need to know about its value.

A 50% increase may leave you no better off if prices also rise by 50%. A 5% increase may improve your purchasing power if prices rise by just 2%.

Equally, a salary increase can leave you worse off if the cost of living rises faster than your earnings.