For much of the post-pandemic period, U.S. consumers have experienced rapid price increases that touched nearly every aspect of the economy, from food and gas to hotels, airfares and cars.
But finally, the price-growth fever appears to be breaking.
And with it, Americans are getting an indirect raise. For the first time since March 2021, wage growth rapidly outpaced price growth.
As a result, in June, real average hourly earnings increased 1.2% on a year-over-year basis, according to data the Bureau of Labor Statistics released Wednesday. In June 2022, real average hourly earnings had declined by 3.2%.
For the 80% of U.S. workers in nonsupervisory roles — basically anyone who reports to a manager — the wage growth was even greater: a 2.2% increase year over year, compared to June 2022 when it had declined by 2.7% on an annual basis.
That means the $33.58 average hourly wage for all employees — and the $28.83 average hourly wage for workers in lower-paid industries — can stretch a bit further than it did for much of the post-pandemic period.
“A 2.2% real wage growth is just really good, excellent performance,” said Josh Bivens, chief economist at the Economic Policy Institute, a left-leaning think tank. “If you do that for a number of years, you end up with much higher living standards.”
When inflation falls, your money goes further
Inflation for all items — including the ones people confront most acutely, like food and energy — fell to 3% in June, the smallest increase in more than a year. That was much lower than the 9% price growth rate seen in June 2022.
The Labor Department’s inflation report showed gas prices fell 26.5% year over year. According to separate data from AAA, U.S. gas prices now average $3.54 per gallon, down from $4.66 in June 2022.
Food inflation, meanwhile, is still elevated — but the 4.7% year-over-year increase seen in June is far below the 13.5% increase seen in June 2022.
As price growth has cooled, wages have been growing 4.5% to 5%, data shows, thanks to high demand for labor as other workers left some jobs during the pandemic.
"While real wages for the median person declined slightly through 2022, in 2023, we've seen inflation fall, while wages have not fallen by as much," said Mike Konczal, a director at the Roosevelt Institute, a left-leaning think tank.
Konczal believes it is becoming increasingly clear that much of the post-pandemic inflation affecting consumers was caused by supply chain issues and the repercussions of Russia's invasion of Ukraine.
What's not driving inflation? The very wage growth U.S. workers are enjoying, Konczal suggested. "Wage growth at 4.5% over this summer — that is absolutely consistent with inflation continuing to fall," he said.
It's important to note that these gains are relative. High prices were so extreme in the pandemic and post-pandemic periods that inflation-adjusted wages have climbed only about 5 cents overall since the winter of 2019-2020.
In a statement following Wednesday's inflation report, Alfredo Ortiz, president and CEO of the right-leaning Job Creators Network, noted that the prices of goods and services have risen more than 16% so far in President Joe Biden’s first term.
"This destruction in the dollar’s value has reduced Americans’ real wages and living standards," he said. "For some goods and services, such as food, prices are up more than 20%. While inflation is finally coming back down, it remains higher than the Federal Reserve’s target rate, and it’s important to remember today’s price increases are compounding off a much higher base."
But the recent gains look sustainable, said Bivens, from the Economic Policy Institute, adding that it is incredibly rare to have inflation-adjusted wage growth as strong as 2.2%.
"I don't see a bubble," he said. "We're lined up for some very good years."