Wages have largely kept up with inflation since the Covid-19 pandemic started in 2020 — but for many workers, it hasn’t felt like much of a win.
Price increases and pay gains have seesawed over the past five years, leaving inflation-adjusted wages roughly flat overall since 2020.
Meanwhile, inflation reached a post-pandemic peak of 9.1% in June 2022, but has since cooled. New inflation data released Tuesday shows consumer prices rose by a year-over-year rate of 2.7% in December, according to the Consumer Price Index, which tracks the prices of things people buy regularly, from groceries and rent to gasoline and medical care.
That brings it closer to the Federal Reserve’s 2% target, but even so, inflation has remained above that level since February 2021, and many households are feeling the squeeze.
Slower inflation doesn’t mean prices are falling — it means they’re rising more slowly. Since early 2020, cumulative CPI inflation is up by roughly 25%, marking one of the fastest increases in decades. Those higher prices are now part of everyday household budgets, especially for essentials like food and housing.
“Even though inflation has moderated, prices continue to rise, keeping it a persistent source of frustration,” Stephen Kates, a financial analyst at Bankrate, tells CNBC Make It.
Wages have caught up — but only barely
After falling behind during the inflation surge, wage growth has outpaced inflation over the past two years, allowing pay to catch up by most measures. Even so, over the full period since the pandemic began, inflation-adjusted wages show little net improvement overall.
Since the first quarter of 2020, wages adjusted for CPI have been largely flat across several common measures, according to analysis from the Hamilton Project, a nonpartisan economic research group.
Those measures include the closely watched Employment Cost Index, which tracks pay changes for the same set of jobs 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.
ECI, along with other common measures, show the total inflation-adjusted change since early 2020:
- Employment Cost Index: –0.19%
- Median weekly earnings: +0.41%
- Average hourly earnings: +0.44%
- Total compensation, including benefits: +1.25%
Taken together, the data show that inflation-adjusted wage growth since 2020 has been close to zero.
But for many workers, “flat” wages don’t feel flat — they feel lagging. Take median weekly earnings, for instance: Inflation-adjusted pay is only slightly higher than it was five years ago, amounting to gains for some workers and little or none for many others.
Kates says those uneven outcomes become clearer when wages are broken down by income level. Wage growth for lower-paid workers has slowed more sharply than for higher earners in recent years, based on data from the Federal Reserve Bank of Atlanta. For households with less room in their budgets, slower wage growth makes it harder to absorb higher prices for everyday necessities.
“Median wage data masks various outcomes across the total population of workers. When wages are broken out by quartile, the lowest-income earners are seeing little to no inflation-adjusted growth,” says Kates.
For many workers, “it feels like stagnation because it is,” he says.
The combination of modest wage gains and higher price levels may help explain why sentiment around household finances remains weak. In a November poll of 1,114 Americans from YouGov, 53% said their household income is just keeping up with expenses, while 32% said they are falling behind.
Similarly, 62% of employed Americans say their income hasn’t kept up with household expenses, according to a December Bankrate survey. Among those who don’t expect their finances to improve in 2026, 65% cited inflation as the main reason, compared with about 30% who pointed to factors like government policies or stagnant income.
For many Americans, flat real wages mean they’re no longer losing ground as quickly — but they’re not getting ahead either.
Federal Reserve Chair Jerome Powell has acknowledged that disconnect. Speaking in December, he said many households are still grappling with “embedded higher cost due to higher inflation in 2022 and ’23,” even as inflation slows.
“We’re going to need to have some years where real compensation is higher, significantly positive … for people to start feeling good about affordability,” Powell said.
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