Wages fall 3% in July as inflation takes toll

The white-hot job market is fueling rapid wage growth for millions of Americans, but the worst inflation in nearly four decades is eroding those gains.

The Labor Department reported Wednesday that average hourly earnings for all employees fell 3% in July from the same month a year ago, when factoring in the impact of rising consumer prices. The average hourly earnings fell by 0.6% last month when accounting for the inflation spike.

The average U.S. worker is worse off today than a year ago, even though nominal wages are rising at the fastest rate in years.

Consumers are confronting, which has reduced their purchasing power.

The consumer price index, a measure of the price of everyday goods, increased 8.5% in July from a year ago, below the 9.1% year-over-year surge recorded in June, according to the government on Wednesday. Prices were unchanged in the one month period from June.

The figures were both lower than the 8.7% headline figure and 0.2% monthly gain forecast by Refinitiv economists, which is a welcome sign for the company as it seeks to cool price gains and tame consumer demand.

Core prices, which strip out the more volatile measurements of food and energy, rose 5.9% from the previous year, less than the 6.1% forecast from economists, but matching the reading from July. Core prices rose less than expected, rising 0.3% on a monthly basis, an increase that is less than in April, May and June, which is an indication that it has a stranglehold on the economy.

That may be a little comfort for Americans who are still struggling with prices for necessities like food and rent that are at a multi-decade high.

While the boost to overall economic prospects is welcome, easing inflation will ring hollow, with many down-market consumers whose wages are falling in real terms despite the decline in gasoline prices alone adding about $400 million dollars back to household balance sheets, said RSM chief economist Joe Brusuelas.

The possibility of a wage-price spiral, a 1970s-style phenomenon, in which high inflation leads to hikes that lead to more spending and more expensive prices is something that has been raised by the combination of high inflation and rising wages.

Inflation has created financial pressures for most U.S. households, which are forced to pay more for basic necessities like food, gasoline and rent. The burden is disproportionately borne by low-income Americans whose already-stretched paychecks are heavily impacted by price fluctuations.