Inflation Has Wiped Out Nearly Every Pay Raise Americans Got Since Early 2025

American workers have been getting raises. The problem is that prices have been rising just as fast — and in the past year, faster. The net result, according to federal data released this week, is that the average worker's paycheck buys almost exactly what it did when President Trump took office in January 2025, despite 20 months of nominal wage growth.

The Bureau of Labor Statistics reported that the Consumer Price Index rose 3.7% over the 12 months through September — above the 3.6% economists had expected and well above August's 3.4% rate. Over the same period, nominal wages grew roughly 3.0%, meaning real average hourly earnings fell 0.7% year over year, according to BLS data.

The arithmetic of the past 20 months is stark. The average hourly wage stood at $35.84 in January 2025, according to federal statistics — equivalent to $37.79 in today's dollars when adjusted for inflation. Last month, the average hourly wage was $37.81. In real terms, workers have gained two cents.

We read the September CPI report as another piece of evidence that the US is facing a persistent inflation problem.— Economists at BNP Paribas

A sharp jump in gasoline prices — up 9.1% in September compared to the previous month — was a major driver of the hotter-than-expected reading, according to Business Insider. Economists link the energy spike to the conflict in the Middle East, which began at the end of February.

This is a very different picture from President Trump's first term when wages were up over 15%, well above about 8% inflation. It helps explain the frustration many households feel right now with the economy.— Heather Long, chief economist at Navy Federal Credit Union

That frustration is showing up in consumer surveys. The University of Michigan's consumer sentiment index fell to 46.3 in October, down sharply from 71.7 in January 2025, according to Business Insider. Joanne Hsu, the director of the survey, attributed part of the drop to higher gas prices driven by the Middle East conflict compounding longer-running cost-of-living pressures.

The squeeze is not felt equally. Workers in middle- and lower-income households spend a larger share of their earnings on necessities like gas and groceries, meaning price spikes in those categories hit them disproportionately hard.

When we look at the majority of the US workforce, people who are middle- and lower-income households, higher costs in things like gas and groceries take up a larger share of their income.— Nicole Bachaud, economist at ZipRecruiter

The White House offered a different framing. Spokesperson Matthew Middleton said that 'under President Trump, private sector workers have seen their wages continue to outpace inflation, with average annual earnings growing by more than $600,' according to Business Insider. That figure measures total annual earnings rather than the hourly or real-wage metrics used by the BLS — a distinction economists note can paint a more favorable picture, partly because workers are putting in more hours.

There are a few genuine bright spots in the data. Average weekly earnings have grown faster than average hourly earnings over the past year, as workers have logged more hours. Grocery prices, while still elevated, rose at a slower pace in September — up 1.8% year over year, down from 2.9% in April, according to Business Insider.

But it's inevitable food prices will likely rise in the months ahead as higher diesel and transport costs are passed along to consumers.— Heather Long, chief economist at Navy Federal Credit Union

That warning is backed by Thursday's producer price index report, which showed final demand prices rose 1.3% in September — the highest reading since 2022, according to Business Insider. Producer prices tend to feed into consumer prices with a lag, suggesting the inflation picture may not improve quickly. With midterm elections weeks away, affordability is shaping up as a defining issue: a September survey by the Economic Innovation Group and Echelon Insights found that 45% of American workers want elected officials to prioritize reducing the cost of everyday essentials, and 23% want a focus on housing affordability.

Why it matters — For the majority of American workers, especially those on tight budgets, flat real wages mean two years of raises have delivered no actual improvement in living standards — and with energy and producer prices still climbing, relief may not be coming soon.

Sources differ on Whether wages have kept pace with inflation under Trump's second term: Real hourly wages are essentially flat over 20 months and fell 0.7% year over year in September, meaning inflation has erased nearly all gains. (bls.gov / businessinsider.com / economicinsider.com) vs Private sector workers' average annual earnings have grown by more than $600, outpacing inflation. (White House (via businessinsider.com))

Reported by businessinsider.com, washingtonpost.com, bls.gov, economicinsider.com