Scorching-hot inflation wiped out most Americans' wage gains in May


Inflation hotter than expected in May

Cheryl Casone of FOX Business breaks down the consumer price index for May.

The white-hot job market is fueling rapid wage growth for millions of Americans, but the worst inflation in four decades is quickly eroding those gains. 

The Labor Department reported Friday that average hourly earnings for all employees actually declined 3% in May from the same month a year ago when factoring in the impact of rising consumer prices. 

On a monthly basis, average hourly earnings dropped 0.6% last month, when accounting for the inflation spike. 

By that measure, the typical U.S. worker is actually worse off today than a year ago, even though nominal wages are rising at the fastest pace in years. 


That's because consumers are confronting the highest inflation in a generation, which has quickly diminished their purchasing power.

"Even though wages are growing rapidly, inflation is growing much faster, so workers are actually losing ground," said Dan North, senior economist at trade credit insurer Allianz Trade North America. "They are effectively getting a pay cut, and that could surely put a drag on the economy."

Businesses are eager to hire new employees and are raising wages in order to attract workers as they confront a labor shortage. There were roughly 11.4 million open jobs at the end of April — near a record high — while the number of Americans quitting their jobs has also climbed to a new high.

A clerk bags dried peppers for a customer inside Grand Central Market March 11, 2022, in downtown Los Angeles. (Patrick T. Fallon/AFP via Getty Images) / Getty Images)

As a result, workers are seeing the largest pay gains in years, as companies compete for a limited number of employees. Earnings rose 5.2% in May from the previous year, the Labor Department reported last week, well above the pre-pandemic average of 3%. 


The combination of high inflation and rising wages has fueled concern about the possibility of a wage-price spiral, a 1970s-style phenomenon where high inflation leads to pay hikes that, in turn, lead to more spending and more expensive prices. 

A man shops at a Safeway grocery store in Annapolis, Md., May 16, 2022. (Jim Watson/AFP via Getty Images / Getty Images)

Scorching-hot inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food, gasoline and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations. 

"Today’s report underscores why I have made fighting inflation my top economic priority," President Biden said in a statement Friday, once again blaming Russian President Vladimir Putin and the war in Ukraine for rising prices. "Even as we continue our work to defend freedom in Ukraine, we must do more — and quickly— to get prices down here in the United States."

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