Inflation Outpacing US Wages, Creating Worst Pay Drop in 25 Years

A woman shops for groceries at a supermarket in Monterey Park, Calif., on Oct. 19, 2022. Frederic J. Brown/AFP via Getty Images

Residents in the United States have less to celebrate on payday as inflation-adjusted wages endure the harshest pay cut in a quarter century, according to the Federal Reserve Bank of Dallas.

The bank’s report revealed that the median decline in real wages was a little more than 8.5 percent for most of the U.S. workforce in the past 12 months—“the most severe faced by employed workers over the past 25 years.”

Hardworking Americans are watching their purchasing power dwindle as prices have risen across the board under President Joe Biden. The impact is particularly noticeable in grocery stores and at the fuel pump.

Food-at-home prices soared by more than 13 percent this year. Concurrently, the cost of regular gasoline catapulted by 49 percent, and diesel users suffered a 55 percent increase between January and June.

Another analysis shows inflation has been outpacing American wage growth for 18 months straight. While average earnings per hour rose by 5 percent, consumer prices spiked by more than 8 percent. That equates to an almost 4 percent decline in real hourly wages as of October.

But more important than numbers, Americans are feeling the effects in nearly every aspect of daily life.

Tough Times

“Judging by our dwindling savings, we may no longer be able to be a single-income household,” Dennis Shirshikov told The Epoch Times.

Working as the sole provider for his wife and three young children, Shirshikov said that his family has been trimming household expenses wherever they can.

“We’ve already cut back on food and clothing shopping trips,” he said. “We’ve taken the kids out of day care, and we’re working on other ways to budget and save.”

Shirshikov says that he’s fortunate to work as a remote strategist for Awning.com since he lives in a rural part of New York. The comparatively lower cost of living in his area has been a silver lining amid the nation’s towering inflation.

People shop at a supermarket in Montebello, Calif., on Aug. 23, 2022. Frederic J. Brown/AFP/Getty Images

“My heart goes out to all the families out there living in cities with multiple children right now. This is a tough time indeed.”

In one survey of 3,000 Americans this year, 41 percent of respondents listed the cost of raising a family as their top concern for 2022. For some, conscious shifts in spending habits have become integral to surviving the widening paycheck-inflation gap.

“I’m more conscientious overall about my spending than I have been in years past,” Melanie Edwards told The Epoch Times.

Edwards works as a digital product manager for the Olipop soda company. She says that high inflation requires creativity to navigate, especially as the holidays approach.

“Inflation has affected my holiday spending and purchasing habits. Gone are the days of waiting until the last minute to buy a gift,” she said. “I’m shopping much earlier than I ever have to snag deals. I’m also forgoing some name brands or designers to save money.”

Falling Behind

Adding to this economic snowball effect is an affordable housing crisis.

Builders have fallen behind on new homes and rentals for 20 years, creating a housing shortage of 5.5 million.

Less mileage per paycheck due to inflation and a federal rate hike that topped 6 percent in September has left Americans struggling to keep a roof over their heads.

“Due to a decrease in real wages, which ultimately leads to a decline in one’s purchasing power, potential home buyers suffer a lot. And although wages are higher than before, they aren’t adjusted for inflation,” Shaun Martin told The Epoch Times.

Martin is a real estate and financial expert at We Buy Houses in Denver, Colorado.

He says that with higher interest rates, many potential buyers are unable to secure a mortgage or even a regular loan.

Coupled with diminished buying power, home sellers have raised their prices. Landlords are doing the same with rentals, which Martin said is especially problematic for salaried workers.

He also noted that it’s too early to say when things will get better. That’s why Martin has made efforts to diversify his revenue.

“I decided to increase my streams of income by investing in different available options. It will increase my inflation-adjusted income,” he said.

Generating more money and savings has been no easy feat for America’s lower- and middle-class earners this year. For households making between $30,000 and $100,000, 75 percent said that their income has fallen behind the cost of living, according to a Primerica survey.

Residential homes under construction in Valley Center, Calif., on June 3, 2021. Mike Blake/Reuters

“Most of the people I know belong to the middle class. The middle class is especially hit with inflation ... this also means that with the increase in necessary expenses, the middle class has significantly less disposable income than before,” Derek Sall told The Epoch Times.

Sall is a financial adviser and the founder of LifeandMyFinances.com.

He said that one of the consequences is a drop in demand for specialty consumer goods, resulting in the shrinkage of affected industries.

“People enjoy being able to spend money on treating themselves. Without it, they become unhappier and overall population satisfaction decreases,” he said.

He noted that this chain reaction leads to overall lower productivity and motivation at work, putting already volatile household incomes at even greater risk.

Yet despite the challenges, it’s important to try to save money, Sall said. Even minor changes to routines and monthly bills can have a net positive effect.

“Going through subscription services such as Netflix or Amazon Prime and getting rid of those is a start. Investigate whether prices for expenses such as cable or phone providers can be changed,” he said.