Wages Have Not Kept Up With Inflation
by Felix Richter,
Sep 1, 2025
While the U.S. economy has come through the inflation crisis relatively unscathed, with robust growth, low unemployment and high stock prices, many American families have not. Many Americans feel worse off now than they did a couple of years ago - and many actually are. The main problem with inflation is the fact that it hits consumers right where it hurts: the wallet. In times of high inflation, when prices increase faster than nominal wages, real wages go down, meaning that workers feel the purchasing power of their income decline.
During the inflation crisis of the past few years, this has been the case from April 2021 to April 2023, when average real hourly earnings declined for 25 consecutive months on a year-over-year basis. In May 2023, real wages began to rise again as nominal wage growth outpaced inflation once again as it normally should. That doesn't mean that the effects of the inflation spike in 2021 and 2022 can no longer be felt, though. Looking at cumulative wage growth since January 2021 and comparing it to the cumulative increase of consumer prices shows that wages still haven't caught up with prices. As our chart shows, real wages have actually declined by 0.7 percent since January 2021, meaning that, adjusted for price increases, Americans are slightly worse off now than they were four and a half years ago.
The good news is that wages have consistently outpaced price increases for the past two years, meaning that real wages are rising again and will soon exceed pre-crisis levels. That is, unless inflation makes an unwanted comeback and labor market conditions continue to worsen, which would negatively affect nominal wage growth.
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