Workers aren’t reaping the rewards of higher wages, Bureau of Labor Statistics data released Wednesday shows.
Employees saw a 0.1% increase in average hourly earnings in July. Those gains were wiped out by a 0.1% increase in prices between June and July.
The yearly inflation rate punched in at 3.4% in July. The price pressures can primarily be attributed to rising energy prices, which have soared as Iran strangles the world’s supply of oil transiting out of the Strait of Hormuz as leverage in the war with the U.S.
Fuel prices alone surged 39.1% in the previous year, according to the report.
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High energy prices have trickled down to other sectors of the economy, including transportation, apparel and food, which hit a 3% annual inflation rate, deepening the United States’ affordability problems ahead of the midterm elections, where cost of living has taken center stage.
Rising housing costs accounted for two-thirds of inflation changes from June to July.
Overall, real average hourly earnings — workers’ average pay adjusted for inflation — declined 0.1% from June to July. Although workers are taking home a larger average paycheck than they did a year ago, they are effectively earning less in purchasing power, according to the report. Workers have slightly less purchasing power than they did when summer began.
Ben Zipperer, senior economist at the left-leaning Economic Policy Institute, said Wednesday’s report was “unambiguously bad news for workers.”
“They’re now taking a pay cut. A frozen job market has weakened their bargaining power and slowed nominal wage growth, and the higher inflation from Trump’s Iran war has caused real wages to decline,” Zipperer said in a text to NOTUS.
Workers have for years faced pressure in their pocketbooks from persistent inflation, which was kicked off by the pandemic and, most recently, compounded by the Iran war. The Trump administration’s continuously changing tariff policies are also raising prices for consumers, as businesses pass on high import costs.
Consumers faced limited relief in July.
Energy prices dipped from June to July as the U.S. and Iran briefly recognized a fragile ceasefire agreement in mid-June. It was one of the few categories where prices declined; medical care, airfares and restaurant prices all rose.
Prolonged inflation is proving to be a thorn in the side of monetary policymakers looking to lower inflation to 2% in the long term. The Federal Reserve has punted interest rate changes at five consecutive meetings, in part due to uncertainty created by the conflict in the Middle East.
However, markets are increasingly becoming convinced that an interest rate increase is on the horizon, which would raise borrowing costs for businesses and consumers to slow spending and bring prices back down. The next interest rate decision will be in mid-September.
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