Wage growth for U.S. workers has significantly cooled since the pandemic era, while inflation continues to rise, creating renewed financial pressure on American households.
Americans are experiencing a familiar financial strain as inflation accelerates beyond wage growth, intensifying pressure on consumer budgets.
“A substantial number of Americans are worse off, their incomes are not keeping up with the price increases right now,” said Heather Long, chief economist at Navy Federal Credit Union, speaking to CNBC.
According to data released Friday by the U.S. Bureau of Labor Statistics, consumer prices rose 3.4% in August compared to the previous year.
At the same time, average hourly earnings increased just 3.1% over the same period, based on a separate BLS report. Real average hourly earnings, adjusted for inflation, fell 0.1% from July and were down 0.3% from a year earlier in August.
This widening gap between inflation and wage growth underscores how workers are steadily losing purchasing power.
“The basics are that inflation is wiping out wage gains,” Long explained, noting that April marked a clear turning point following an extended period where wage growth had generally surpassed inflation.
Between May 2023 and April of this year, workers had been gradually regaining financial ground.
In fact, Long began tracking the inflation-wage relationship a year ago to highlight how conditions were improving—even as Americans expressed frustration over persistently high prices, wages were slowly catching up.
However, that progress reversed this spring due to rising energy costs.
“That’s what’s just hard to watch. Things were getting better, and now that improvement has blown up,” she remarked.
Energy continues to be a significant factor, with gasoline prices climbing 3.9% in August alone, contributing more than one-third of the consumer price index’s overall gain. Diesel reached $6 per gallon on Friday for the first time, driven by fuel supply disruptions linked to conflicts in Iran and Ukraine.
Long connects these shifts in household finances to the sharp rise in energy prices following the war in Iran. Navy Federal previously estimated that gasoline prices surged 21% in March, pushing its measure of car ownership costs to record levels.
‘Going to Be Tough for a Long Time’
Long noted that it remains challenging to expect inflation to decline significantly amid ongoing geopolitical tensions, especially as wage growth decelerates.
“It’s going to be tough for a long time,” she said.
The most optimistic scenario, according to Long, would involve wage growth and inflation aligning again by early 2027. However, she cautioned that even then, such parity would likely still feel difficult for everyday Americans.
A sustained reduction in purchasing power is already influencing consumer behavior. Since consumer spending accounts for approximately two-thirds of U.S. economic activity, Long anticipates that households will increasingly adopt more cautious spending patterns.
Consumers Are Adjusting
These behavioral shifts are beginning to appear in economic data as well.
According to YouGov, higher-income shoppers are increasingly frequenting Costco for groceries, whereas Walmart Supercenters remain the preferred choice among middle- and lower-income households.
A comparable movement toward warehouse clubs and discount retailers is also evident in Navy Federal’s internal spending data, which reflects transactions across roughly 15 million members.
“People who used to shop at Whole Foods are now at Costco, Aldi, and so you can see that people are still really trying to stretch every dollar,” Long observed, adding that this trend is becoming visible “almost across the income spectrum.”
“The frustration is real on inflation and affordability,” she said.
