Inflation is outpacing wage growth again, squeezing Americans’ paychecks

Americans face a renewed squeeze on their paychecks as inflation once again rises faster than wage growth, putting further pressure on consumer wallets.

"A substantial number of Americans are worse off, their incomes are not keeping up with the price increases right now," Heather Long, chief economist at Navy Federal Credit Union, told CNBC.

Consumer prices rose 3.4% in August from a year earlier, according to data released Friday by the U.S. Bureau of Labor Statistics.

Average hourly earnings, meanwhile, increased just 3.1% over the same period, according to a separate BLS report released Friday. Real average hourly earnings, adjusted for inflation, fell 0.1% from July and were down 0.3% from a year earlier in August.

The gap between inflation and wage growth is a stark reminder that workers are losing purchasing power.

"The basics are that inflation is wiping out wage gains," said Long, adding that April marked a clear turning point after a lengthy stretch in which wage growth had generally exceeded inflation.

From May 2023 until about April of this year, workers had been slowly regaining ground.

In fact, Long first started charting the inflation-wage growth relationship a year ago to make the opposite point — that things were improving and even as Americans remained frustrated at the time by the higher overall price level, wages were gradually catching up.

"That's what's just hard to watch. Things were getting better, and now that improvement has blown up," she said.

Energy remains a major source of pressure now, with gasoline prices rising 3.9% in August alone, accounting for more than one-third of the consumer price index's gain. Diesel touched $6 per gallon on Friday for the first time amid fuel supply disruptions arising from wars in Iran and Ukraine.

Long ties the shift in household finances to the surge in energy prices following the war in Iran. Navy Federal previously estimated that gasoline prices jumped 21% in March, helping push its measure of car ownership costs to a record.

Long said it is difficult to see inflation falling substantially while geopolitical pressures continue, particularly as wage growth slows.