American consumers are facing added strain as inflation continues to outpace wage growth.
“A substantial number of Americans are worse off, their incomes are not keeping up with the price increases right now,” Heather Long, chief economist at Navy Federal Credit Union, told CNBC in an interview Sunday (Sept. 13).
Data released last week by the U.S. Bureau of Labor Statistics showed consumer prices up 3.4% year over year in August, while average hourly earnings were up 3.1% during the same period. Real average hourly wage, when adjusted for inflation, declined 0.1% from the previous month and 0.3% from August 2025.
The CNBC report called this gap between inflation and wage growth a stark indication of the way workers are losing purchasing power.
“The basics are that inflation is wiping out wage gains,” said Long, adding that April marked a turning point after a long period stretch in which wage growth had mostly exceeded inflation.
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Long began charting the inflation-wage growth relationship a year ago to show that things were improving. Americans were frustrated by high prices, but wages were catching up. However that progress began reversing when energy costs spiked this year.
“That’s what’s just hard to watch,” Long said. “Things were getting better, and now that improvement has blown up.”
As covered here last week, the August inflation figures put added pressure on the recurring expenses that leave consumers with relatively little room for discretionary spending.
“Housing, groceries and gasoline generally must be paid before households decide how much they can devote to restaurants, travel, entertainment or purchases that can be postponed,” that report said, citing PYMNTS Intelligence data which shows that many consumers with the least financial flexibility have already been making those tradeoffs.
The PYMNTS Consumer Expectations Index found in June that 53% of Americans who live paycheck to paycheck and have difficulty paying their bills reduced spending on nonessentials like dining out, entertainment and travel in the prior year. Meanwhile, 23% increased it.
Among paycheck-to-paycheck consumers who were had no trouble paying their bills, 41% cut back nonessential spending, and 27% increased it. Consumers not living paycheck to paycheck were the only group where increases exceeded reductions, with 30% reporting increased spending more on nonessentials, and 27% spending less.
“The figures point to different spending capacity across households,” PYMNTS added. “Consumers with adequate savings and income still have room for discretionary purchases. For those already cutting nonessential expenses, another increase in recurring costs leaves fewer expenses available for an easy reduction.”
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