Rising Costs vs. Stagnant Wages: The Power Struggle Plaguing American Households

Over the past few years, US inflation has continued to put an increasingly heavy strain on the typical American family's budget.

by Faruk Imamovic
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Rising Costs vs. Stagnant Wages: The Power Struggle Plaguing American Households

Over the past few years, US inflation has continued to put an increasingly heavy strain on the typical American family's budget. With rising costs and stagnant wages, many families find themselves in a financial crunch, struggling to keep up with the same expenses they were able to afford comfortably just a few years prior.

How Deep the Impact Goes

According to a recent report by Moody’s Analytics, the average American household spent an extra $709 in July compared to the same month two years ago. This unsettling uptick is for the identical basket of goods and services.

Mark Zandi, the chief economist at Moody’s Analytics, expressed his concerns via X (formerly known as Twitter). “High inflation of the past 2+ years has done lots of economic damage,” he said. Although consumer prices have risen significantly, real earnings, when adjusted for inflation, have remained stagnant since the end of 2019.

Zandi elaborated on this issue during a communication with CNN. He explained that "real earnings remain below what they would have been if not for the pandemic and the Russian war." He highlighted how these economic and geopolitical factors are negatively affecting the public's mindset and confidence.

To bring it into sharper focus, Zandi pointed out that just over the span of a year, the average household spent an additional $202 this past July to purchase the same set of goods and services they did in the previous July.

A Glimmer of Hope?

Despite the alarming trend in rising costs, there was a bit of encouraging news recently. A government report unveiled that consumer prices rose by a more modest 3.2% this July compared to the same month in the previous year, a figure that was cooler than anticipated.

Commenting on this, economists at the Bank of America described the data as "encouraging" in a note to their clients. They further stated that they “wouldn’t be surprised to see another soft” inflation figure for August.

While they acknowledged that the month-over-month inflation figures might still show volatility, they expressed a belief that “the current disinflation is not a ‘head fake.’” For American families, these findings offer a mixed bag.

While the prolonged inflationary trend has undeniably hurt household budgets, the latest data suggests that there might be a light at the end of the tunnel. Only time will tell if these positive signs become a lasting trend.

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