US Wages Still Trailing Inflation, New Bankrate Study Shows

Four years after pandemic-era inflation eroded Americans’ purchasing power, wages continue to lag behind inflation, according to a new study.

According to Bankrate’s 2025 Wage to Inflation Index, U.S. workers’ rise in earnings is, on average, 1.2 percentage points below the rise in the cost of living compared with January 2021.

During this period, using Bureau of Labor Statistics data, prices have risen by almost 22.7 percent, while wages have increased by 21.5 percent, resulting in the 1.2-percentage-point lag.

Although this gap remains, it has decreased from its peak of 4.8 percentage points in the second quarter of 2022 and has been narrowing since the third quarter of that year.

However, not all paychecks are struggling to keep up with the cost of living.

Four industries have seen wages surpass inflation: food services and accommodation (4.8 percentage points), leisure and hospitality (4.1 percentage points), health care and social assistance (1.7 percentage points), and retail (0.5 percentage points).

Conversely, the sectors that have recorded a widening divergence include education (negative 4.8 percentage points), construction (negative 3.6 percentage points), financial services (negative 3.4 percentage points), and professional and business services (negative 2.8 percentage points).

Inflation outpacing wages could be one reason why workers remain pessimistic about the U.S. economy, said Sarah Foster, a Bankrate economic analyst.

Even though the Federal Reserve Bank of New York’s July Labor Market Survey found that more than half (54 percent) of respondents were satisfied with their wages at their current jobs, Bankrate’s latest survey of consumer sentiment found that more than half (56 percent) of Americans believe that the economy is on the wrong track.

“Economists call the U.S. economy ‘resilient,’ but many Americans don’t agree. One likely reason for Americans feeling so downbeat is that their wages still haven’t fully recovered from the shock of post-pandemic inflation,” Foster said in a statement to The Epoch Times.

Consumers also expect higher inflation in the year ahead. The University of Michigan’s August Consumer Sentiment Index preliminary report indicated that the one- and five-year inflation outlooks rose to 4.9 percent and 3.9 percent, respectively.

However, new Treasury data suggest that financial conditions could be improving, particularly for blue-collar workers.

In the first five months of President Donald Trump’s second term, real (inflation-adjusted) hourly wage growth for production and nonsupervisory workers rose by 1.7 percent, the largest year-to-date growth under any administration since former President Richard Nixon.

Additionally, in July, real average hourly earnings jumped by 1.2 percent on a 12-month basis, according to the Bureau of Labor Statistics. Real average weekly earnings advanced by 0.4 percent in July.

‘Road to Recovery’ Stagnates

A primary concern, according to Foster, is that if the labor market deteriorates or cost pressures build—which is known as stagflation—“the road to recovery could take even longer.”

Fears that the U.S. labor market is weakening were amplified following last month’s jobs report.

While the economy created a worse-than-expected 73,000 new jobs, the Bureau of Labor Statistics revised the May and June jobs data down by 258,000.

On the inflation front, consumer prices have held steady as businesses and exporters absorb a majority of the higher tariff-driven costs. At the same time, two key pipeline inflation indicators—the producer price index and import prices—unexpectedly soared in July.

Chicago Federal Reserve President Austan Goolsbee, in an Aug. 15 interview with CNBC’s “Squawk Box,” said monetary policymakers are attempting to grapple with the economic data to determine if the United States is heading toward stagflation.

“We’re trying to grapple with this idea of, is this going to be a persistent inflation shock? Is this going to be stagflationary in direction, which is to say it’s going to be driving down employment at the same time it’s driving up prices?” Goolsbee said.

Economic observers, including LPL Chief Economist Jeffrey Roach, have suggested that recent figures point to a “stagflation-lite period” potentially forming.

“Hotter inflation amid a backdrop of slower growth could signal a stagflation-lite period,” Roach said in a note emailed to The Epoch Times.

“Investors must come to grips with inflation above the Fed’s target amid a backdrop of slower growth, setting things up for stagflation-lite.”

Since the United States experienced a stagflationary period in the 1970s, economists have regularly predicted similar scenarios, although their prognostications never came to fruition. But Goolsbee says that when he thinks about tariffs, he typically observes a “heavy stagflationary component.”

Despite both aspects of the central bank’s dual mandate—maximum employment and price stability—being potentially under threat simultaneously, investors overwhelmingly think the Fed will cut interest rates next month for the first time since December.

New CME FedWatch Tool data indicate an 85 percent chance of a quarter-point reduction to the influential benchmark federal funds rate at the two-day September Federal Open Market Committee policy meeting.

Market watchers will likely gain fresh insights into the broader economic landscape and monetary policy expectations when Fed Chair Jerome Powell delivers his final keynote address at the Jackson Hole Economic Symposium on Aug. 22.