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By Robert Thorpe
Senior Editor
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Recent data from the Bureau of Labor Statistics shows the cost of living continues to outpace earnings, leaving many Americans struggling to make ends meet.
Why It Matters
The current economic landscape shows a disappointing trend where inflation has risen faster than wages. This disparity impacts everyday Americans who now find their paychecks do not stretch as far as they once did.
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The Consumer Price Index (CPI) rose by 2.9 percent in December 2024 compared to December 2023. This year-over-year increase indicates that the prices for a broad range of goods and services have gone up over the past year. With the cost of essentials like housing and groceries continuing to climb, it's harder for families to make ends meet.
What To Know
From December 2023 to December 2024, the average hourly and weekly earnings for American workers saw modest increases. According to the U.S. Bureau of Labor Statistics, real average hourly earnings rose 1 percent from $11.12 to $11.23, while real average weekly earnings increased 0.7 percent from $382.62 to $385.34.
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Despite these small wage increases, the inflation rate during that period was around 2.9 percent. So while wages have seen some increases, they haven't been enough to keep up with the rising costs of goods and services. This means workers are effectively earning less than before when adjusted for inflation.
An inflation calculator shows that the real average hourly earnings for 2023 should equal $11.44 in December 2024 to maintain the same purchasing power. However, the actual real average hourly earnings in December 2024 were only $11.23, further highlighting that wage growth has not kept pace with inflation.
What People Are Saying
Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek: "While wages have seen slight increases in recent years, it's fair to say that most of them are still significantly behind the inflation we've experienced over the last few decades in cost of living. That doesn't mean we don't celebrate those smaller gains, as every dollar matters for lower and middle class families. However, that wage growth will have to be sustained by a long term pattern of continual increases to have a chance of meeting inflationary pressures."
Kevin Thompson, founder and CEO of 9i Capital Group, told Newsweek: "Over the past few decades, worker wages have struggled to keep pace with economic changes. From 1979 to 2020, worker productivity jumped but hourly pay did not keep up when adjusted for inflation. This persistent wage stagnation means workers are essentially earning less in real terms, despite working more."
"The recent post-pandemic economic landscape hasn't fundamentally changed this trend. While nominal wages increased by 5.1 percent in 2022, real wages actually dropped by 1.7 percent. Inflation has been the primary culprit, with food prices rising 11.4 percent and shelter costs increasing 8.2 percent in just one year."
What Happens Next
According to Beene and Thompson, purchasing power remains reduced as long as wages and prices remain deeply out of sync. Beene notes that even if salaries slightly improve, it still leaves most employees unable to make larger purchases like a new home or vehicle, and progress on this front will take time.
Thompson anticipates that in 2025, workers' purchasing power will continue to be eroded as companies employ strategies like shrinkflation to reduce costs and maintain pricing power. This means consumers will get less for their money.
Additionally, proposed tariffs from President Trump could further impact consumers. These tariffs are expected to cause significant price increases on items like clothing, electronics and household appliances. According to CNBC, Mark Zandi, chief economist at Moody's Analytics, warned in December tariffs could lead to job losses and "...mean higher costs for consumers — it's a tax increase."
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