Saturday, 02 Nov 2024

Americans' wages are finally outpacing inflation. Here's why it may not last


Americans' wages are finally outpacing inflation. Here's why it may not last
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US wages have been on the rise, but it sure hasn't felt like it. For more than two years, persistent and pervasive inflation has taken big bites out of Americans' paychecks.

That's finally starting to change now that inflation is waning.

In June, for the first time in 26 months, US workers' real weekly earnings (a week's worth of wages adjusted for inflation) grew on an annual basis, according to data released this week from the Bureau of Labor Statistics. Annual real weekly wages were up 0.6% last month, a rate that's a tick below the 0.7% gain seen in February 2020.

June also marked the second consecutive month of year-over-year real hourly wage growth - the first back-to-back months of gains since early 2021.

"The big problem for most consumers is when wage increases do not keep pace with inflation, then we lose real purchasing power," said William Ferguson, the Gertrude B. Austin professor of economics at Grinnell College in Iowa. "And that's actually what hurts people."

Although long overdue, this development is landing at a sticky time in the economy and the Federal Reserve's knock-down-drag-out fight to tame inflation. The Fed has been laser-focused on dampening demand, and central bankers have frequently noted they're keeping close watch on how much wage growth could stoke that demand and, in turn, inflation.

Alternatively, if a cooling labor market turns frigid, that could also make this recent growth short-lived.

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