Wages have barely kept pace with inflation since the coronavirus pandemic began in 2020, but for many workers it doesn’t feel like much of a victory.
Price and wage increases have seenawed over the past five years, with inflation-adjusted wages generally remaining flat since 2020.
Meanwhile, inflation reached its post-pandemic peak of 9.1% in June 2022, but has since declined. New inflation data released Tuesday showed consumer prices rose 2.7% year-on-year in December, according to the Consumer Price Index, which tracks the prices of things people regularly buy, from food and rent to gasoline and medical supplies.
This would move the economy closer to the Federal Reserve’s 2% target, but the inflation rate has still exceeded that level since February 2021, putting many households under pressure.
Slower inflation doesn’t mean prices are falling, it just means prices are rising more slowly. Since the beginning of 2020, cumulative CPI inflation has increased by about 25%, one of the fastest increases in recent decades. These price increases are now part of everyday household budgets, especially for essentials such as food and shelter.
“Despite inflation slowing, prices continue to rise and are a deep source of dissatisfaction,” Bankrate financial analyst Stephen Cates told CNBC Make It.
Wages are catching up, but just barely.
Although it lagged when inflation spiked, wage growth has outpaced inflation over the past two years, allowing wages to catch up by most measures. Still, over the entire period since the pandemic began, inflation-adjusted wages have shown little overall net improvement.
Since the first quarter of 2020, wages adjusted for the CPI have remained roughly flat across several common metrics, according to an analysis by the Hamilton Project, a nonpartisan economic research group.
These metrics include closely monitored employment cost indexes that track changes in wages for the same occupation over time, making it a useful way to see how wages are rising relative to inflation, according to the U.S. Bureau of Labor Statistics.
The ECI, along with other common indicators, shows the total inflation-adjusted change since the beginning of 2020.
Employment cost index: -0.19% Median weekly wage: +0.41% Average hourly wage: +0.44% Total compensation including benefits: +1.25%
Taken together, the data shows that inflation-adjusted wage growth has been close to zero since 2020.
But for many workers, a “flat” wage isn’t flat; it feels like they’re behind. For example, consider median weekly income. Inflation-adjusted pay is only slightly higher than it was five years ago, representing an increase for some workers and little or no increase for many others.
Cates says these uneven results become clearer when wages are broken down by income level. Data from the Federal Reserve Bank of Atlanta shows that wage growth for low-wage workers has slowed more rapidly than for higher-income workers in recent years. For households with tight budgets, slowing wage growth makes it difficult to absorb rising prices for everyday goods.
“Median wage data mask different outcomes across the working population. When you break down wages into quartiles, low-income earners have seen little or no inflation-adjusted growth,” Cates said.
For many workers, “the status quo feels stagnant,” he says.
The combination of modest wage growth and rising price levels may help explain why sentiment around household finances remains weak. In a November YouGov poll of 1,114 Americans, 53% said their household income was managing to keep up with their expenses, while 32% said it was not.
Similarly, 62% of employed Americans say their income is not keeping up with household expenses, according to a December Bankrate survey. Among those who do not expect their finances to improve in 2026, 65% cited inflation as the main reason, while around 30% cited factors such as government policies and stagnant incomes.
For many Americans, flat real wages mean they’re not falling out of rank as quickly, but they’re also not moving forward.
Federal Reserve Chairman Jerome Powell acknowledged the disconnect. In a speech in December, he said that despite slowing inflation, many households were still suffering from “high embedded costs from higher inflation in 2022 and 2023.”
“It’s going to take a few years of higher and significantly more positive real compensation before people start to feel comfortable with affordability,” Powell said.
Want to use AI to advance your work? Sign up for CNBC’s new online course, Beyond the Basics: How to Use AI to Supercharge Your Work. Learn advanced AI skills like building custom GPTs and using AI agents to increase your productivity today. Use coupon code EARLYBIRD for 25% off. Offer valid from January 5th to January 19th, 2026. Terms and conditions apply.
