Why it feels like inflation is growing faster than your paycheck
If you feel like your paycheck hasn’t kept up with inflation, you aren’t alone — and you may be right.
About three-quarters of respondents to a Wall Street Journal national survey this week said they believe costs for everyday goods and services have outpaced the growth of household income during the past year.
That’s despite the fact that inflation — which has left prices for food and other essentials more than 20% higher since President Biden took office — has cooled sharply this year, rising 2.4% in September versus a mid-2022 peak of more than 9%, according to the Labor Department.
One key problem for consumers is that while their wages by some measures have kept pace with price hikes, after-tax wages have not, according to Ted Jenkin, oXYGen Financial co-founder and business consultant.
“If wages grew by 4% over the last year and taxes eat up 1% of that growth, that leaves Americans with only 3% of real wage growth,” Jenkin told The Post. “The costs Americans see for car insurance, maintenance on their homes, groceries and putting their kids through school far surpass this 3%.”
Wages have risen faster than the inflation rate on average since last February, according to Statista. But price hikes far exceeded wage growth during the pandemic, suggesting US employees may feel their hard-earned raises have been canceled out by higher prices.
Buoyed by price increases that have eased in recent months, the Federal Reserve issued a half-point interest rate cut in September in a bid to address looming concerns about the job market.
Nevertheless, some 38% of voters said the cost of living was still rising and causing major strains for their families, according to the Journal’s survey in late August. That’s the highest level since the Journal started asking the question in November 2021 – when inflation was much higher than it is now.
“Inflation has not sat well with people, and rightfully so, as people are still adjusting to an unfortunate new normal,” Mahoney Asset Management CEO Ken Mahoney told The Post.
“Improved economic data still doesn’t change prices for the average American – [who] most likely does not pay attention to economic data like those involved in financial markets do – and that is what has people pretty soured,” Mahoney said.
Consumer sentiment, for example, remains far below pre-pandemic levels, according to the University of Michigan’s Surveys of Consumers — but such reports can be misleading, according to experts. The same is true when it comes to jobs data, said SMI Group CEO Kenin Spivak.
“Unemployment levels are low, but there is an uptick in people who can find only part-time positions or have dropped out of the workforce,” Spivak told The Post.
Such discrepancies are a problem for Vice President Kamala Harris, since voters give former president Donald Trump the lead on which candidate is better suited to handle the economy, according to the Journal.
“Particularly if Trump wins the election, a change in administrations will offer hope for an improved outlook,” Spivak told The Post. “But, regardless of who wins, the change in administration probably will change consumer attitudes.”
Despite robust economic data, inflation is king among consumer concerns — and it’s not just higher prices for commodities and labor that are driving the problem, said Hitha Herzog, chief research officer at H Squared Research.
“Retailers, whether they want to admit this or not, simply don’t want to reduce pricing,” Herzog told The Post. “Specifically for customers who are not price sensitive, retailers serving those customers feel more inclined to not move the price needle down.”
