Inflation surge has squeezed shoppers. Sluggish pay has made it worse
Inflation eased slightly last month, but price hikes still outpaced wage growth.
Shoppers weary of price hikes could find glimmers of hope in a recent government report: falling grocery prices, cooling energy costs and the lowest inflation since March.
The relief, however, came with a catch: the pace of price increases continues to outpace the average rise in wages, sapping spending power out of take-home pay.
Wages began to trail inflation in April, exacerbating the budget crunch unleashed after a price surge set off by the Iran war, some analysts told ABC news.
The weakening of workers' purchasing power, they said, helps explain widespread outrage about inflation, even as it remains well below a peak achieved during the COVID-19 pandemic.
The issue carries high stakes as the political calendar turns toward November's midterm elections. A Washington Post/Ipsos poll found a majority of registered voters say that the economy and high prices is one of the three most important issues in their vote for Congress, far more than any other issue.
"People don't like inflation -- and they really don't like it when inflation eats away at their wage gains," Harry Holzer, a professor of public policy at Georgetown University and a former chief economist at the U.S. Department of Labor.
Prices rose 3.4% in July compared to a year earlier, marking a slight cooldown from the prior month, federal government data released on Wednesday showed.
Days earlier, however, a jobs report showed annual wage gains had fallen to a 3.2%, a five-year low.
The Iran war drove up gasoline prices and catapulted inflation to a three-year high in May. A preliminary peace agreement in June offered up some relief, and a slight dip in July brought inflation down further.
Still, the pace of price increases stands above the level before the Iran war, in part because gasoline costs remain highly elevated.
The national average price of a gallon of gas registered at $4.07 on Thursday, AAA data showed, marking a 36 % rise since the outbreak of war in late February.
The pain at the pump has drawn close attention, but less focus has been paid to a slowdown in wage increases that has coincided with the surge in costs.
"Wage growth was already slowing even before the uptick in energy prices following the U.S.-Iran war, but price increases add insult to injury, almost entirely wiping out wage gains for the average worker over the last year," Daniel Zhao, lead economist at job-listing platform Glassdoor, told ABC News in a statement.
A jobs report last week showed the U.S. economy unexpectedly lost jobs in July, thrusting the labor market into reverse. The U.S. lost 23,000 jobs in July, according to the federal government's monthly jobs report, which marked a decline from 20,000 jobs added in June.
The July report included downward revisions for hiring in each of the previous two months, slashing job gains by a total of 103,000 positions.
Lydia Boussour, a senior economist at accounting firm EY, attributed a cooldown in wage growth to a "soft labor market."
"Businesses are being more selective and cautious with hiring, and they're using wage compression as a way to mange some of the higher costs they're seeing," Boussor said.
Other factors have contributed to unrest over inflation, some analysts said. An acute bout of inflation during the pandemic sent prices soaring. A cooldown of price hikes over recent years slowed the rise in prices, they noted, but it did not bring prices down to where they stood before the pandemic.
In recent months, the combination of sluggish pay and surging prices has prompted many shoppers to draw down savings and take on debt, Boussor said.
In June, the most recent month on record, the savings rate fell to 2.7%, the lowest level since 2022, federal government data showed.
Credit card debt, meanwhile, increased to $1.26 trillion over three months ending in June, according to the New York Federal Reserve, putting it just below an all-time record of $1.28 trillion recorded last year.
"Consumers are frustrated," Boussor said. "They're turning to credit and savings to finance their spending to keep up with higher prices.
ABC News' Emily Guskin contributed to this report.
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