On average, wages have outpaced inflation since the pandemic, but even with those gains, plenty of people miss the "good old days" of lower prices.
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American consumers have been frustrated by high prices over past years, but there's some good news: wages have outpaced inflation since the start of the COVID-19 pandemic.
Since 2020, average hourly wages for most US workers have risen faster than the consumer price index, meaning income has maintained its purchasing power against rising prices.
Furthermore, real wages — earnings adjusted for inflation — have been positive over the past year, according to the Bureau of Labor Statistics, meaning workers are gaining purchasing power.
But while wage gains show promising signs for US workers, it can take longer for consumers' perspectives to shift; many Americans are still reckoning with past years' sticker shock and high housing costs.
Nearly four in five US voters said price increases were the top source of their financial stress in the last three months, according to the FT-Michigan Ross Poll.
While wage gains have outpaced inflation, it can be difficult for consumers to feel the growth, and plenty of people still miss the "good old days" of lower prices.
According to Bankrate Analyst Sarah Foster, that's because economists and consumers see prices differently.
Economists pay attention to inflation indicators which measure the rate of change of prices. Meanwhile, many consumers focus on the price levels for individual goods (like grocery store receipts) and how they compare to previous years, Foster said.
While inflation is now slowing, many Americans still feel burdened by what they see as a jump in the price tags of various items over the past four years.
"They remember how much it used to cost to fill up their gas tank; they remember how much it used to cost to buy a cart full of groceries," Foster said.
Since 2020, prices have risen 20.9%, according to the Bureau of Labor Statistics. However, across that same period, average hourly earnings for production and nonsupervisory workers — most US workers — have risen roughly 25.7%.
Furthermore, the 25.7% increase in hourly wages for production and nonsupervisory workers is slightly ahead of the 23.1% increase in wages for all private workers, meaning employees have gained a bit more than their bosses.
That wage growth is due in part to a tight labor market and state-level minimum wage increases from 2019 to 2023, according to the nonprofit think tank Economic Policy Institute.
Nonetheless, wage growth has differed across industries, and while average growth is strong, high prices can be crippling for those whose incomes have paced behind inflation, Foster said.
Furthermore, Foster said that industries with strong wage growth, like food services, leisure, and hospitality, are often low-paying jobs to begin with, meaning people are already sensitive to higher prices.
Consumer prices rose 3.0% year-over-year in June, according to the Bureau of Labor Statistics, the lowest rate in a year and far below the pandemic-era peak of 9.1% year-over-year in June 2022.
Meanwhile, average hourly earnings for production and nonsupervisory workers increased 4.0% year-over-year in June, continuing a yearlong trend of hourly wage growth beating out inflation.
Since spring 2023, year-over-year wage growth for production and nonsupervisory workers has consistently been above inflation.
In another positive sign for people's wallets, prices also decreased 0.1% from May to June, marking the first month-over-month drop since the start of the COVID-19 pandemic.
There were some price outliers, such as uncooked beef, which was up 10.5% year-over-year in June. Nonetheless, inflation has come down a lot since 2022.
Still, prices themselves have not. Overall, price levels are up roughly 7% since inflation's peak in 2022. Yet, wages are up about 10% in the same period, highlighting that income has maintained its power.
And higher price levels can be good for the economy. The Federal Reserve targets a 2% inflation rate, so even in a healthy economy, price levels are rising — what matters is managing the rate at which they increase and how that compares to rising incomes.
In fact, broad and prolonged deflation — falling prices — is a recipe for high unemployment, economist Paul Krugman wrote in a July 16 New York Times column.
While US consumers adjust to higher prices, strong wage growth should help ease affordability concerns, Krugman wrote.
Have you had a pay increase but still feel burdened by high prices? Please reach out at jtowfighi@businessinsider.com.
