:max_bytes(150000):strip_icc()/GettyImages-2112355089-d2effb2d5a5540419c3ad29beec3f046.jpg "Lower Inflation and Higher Wages Have Made Paychecks Go Further")
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Key Takeaways
- Despite high inflation over the past few years, buying power has gone up because pay raises have more than kept up.
- Typical hourly pay goes farther now than it did before the pandemic, according to the latest data on wages and consumer prices.
- More members of the public say they’re doing worse financially in 2024 than in 2021, leading economists to speculate about reasons for the disconnect.
It may not seem like it, but on average, Americans’ paychecks are going further these days than they did before the pandemic.
June’s better-than-expected inflation report was the latest in a series of data showing paychecks are growing faster than bills. As of June, average hourly earnings grew 3.9% over the last year, while Thursday’s Consumer Price Index (CPI) report showed prices had only risen 3%, according to data from the Bureau of Labor Statistics.
Most people’s household budgets have been hurt by steep price increases on essentials like groceries over the past four years. That’s especially true for those who earn lower wages and typically spend more of their income on necessities. Yet, hourly earnings have been on a distinct upward trend for nearly two years, and are well above pre-pandemic averages.
Put another way, paychecks have risen faster than price tags.
Polls, however, show that many people don’t feel more secure. In an AP-NORC poll taken in February, only 24% of U.S. adults said they were in a better financial situation than when President Joe Biden took office in January 2021, while 41% said they were worse off.
Experts have offered various theories to explain why public opinion and data tell such different stories about how the economy is doing, including that official inflation figures don’t include the higher costs people are paying for loans because of the Federal Reserve’s campaign of interest rate hikes.
Whether the standard of living continues to increase rests partly in the hands of officials at the Fed, who are attempting to set the central bank’s influential fed funds rate at just the right level to slow down inflation and the economy, but not so much that the job market collapses.
In the meantime, those who argue the economy is in good shape are hoping people pay as much attention to their paychecks as their grocery bills when assessing their financial condition. Grocery prices have risen 1.1% over the year, according to the CPI, versus the 3.9% increase in typical wages, noted Kirabo Jackson, a member of the White House Council of Economic Advisors, in an interview.
“You can buy about 2.8%, almost 3% more food at the grocery store than you could a year ago,” he said. “That’s a meaningful increase. That’s a real thing.”