Wage growth still exceeds inflation

We know inflation continues to be a major irritant for American consumers, even though the rate of price increases is gradually coming down. Wages, though, are a bit of a happier story. In October, average hourly earnings were up 4% year over year. 

Prices, meanwhile, rose by just over 2.6%. What’s it all mean for Americans’ household finances heading into the holidays?

Back in 2022, inflation peaked at 9%. And wage gains fell way behind, eroding the purchasing power of most workers, said Julia Pollak at ZipRecruiter.

“But since then, pay has been catching up, and wages have now been rising faster than inflation,” Pollak said.

For about a year and a half. Still, Pollack said, “most workers are lagging behind where they would have been if pre-pandemic trends had continued.”

Because prices are still so much higher than they were before the pandemic. 

Meanwhile, if you work for a small business, you’ve likely been getting smaller pay bumps than the average American worker. 

Frank Fiorille tracks wage inflation for payroll processor Paychex. 

“It’s definitely come down from last year, where we were seeing some pretty robust growth,” Fiorille said. “You know, it moved under the 3% rate a couple of months ago and then it popped back up, so a little bit of an uptick.”

All in all, said Ted Rossman at Bankrate, when it comes to workers’ purchasing power, “even though the job market’s been good, they’re not feeling great about things.”

That’s especially true of low and middle-income wage earners, said Rossman. Many of them are overwhelmed by high prices for everyday living expenses, using credit cards to make ends meet, then falling behind. 

Bankrate reports half of credit card holders carry debt over from month to month, at an average interest rate just over 20%. 

“But some people are paying 25, 30. Store credit cards, a lot of those are in the mid-30s, I mean, it’s crazy,” Rossman said. “These are rates we used to think of for deep subprime borrowers. But now it’s become increasingly common.”

There is some light on the paycheck horizon, though. 

Pollak at ZipRecruiter said heading into 2025, a majority of employers posting jobs on the site are boosting wages. 

“Almost one in four employers say they’re planning significant increases of 5% or more. So, it looks as though wage growth is back on track,” Pollak said.

The incoming Trump Administration is a bit of a wild card, though. Mass deportations could lead to labor shortages, driving wages higher. Those higher wages, plus steep new tariffs on imports, could push prices higher as well.