The cost of food, shelter and gas have all risen significantly in the past year. Gas skyrocketed more than 24 percent, rent for a primary residence jumped 3.6 percent and meals at restaurants and cafeterias rose 2.8 percent.
Prices have risen roughly at the same rate as wages, erasing any gains workers may have hoped to realize via bigger paychecks.
“While the labor market remains historically tight, the pace of U.S. inflation is now outpacing wage gains late in the business cycle,” said Joe Brusuelas, chief economist at RSM, an audit and advisory firm. “The U.S. is now ensnared in a three front trade war which will in the near to medium term result in higher prices.”
For workers, more pain may be coming, as economists are concerned that prices could rise further due to President Trumps tariffs on many foreign imports. Trump put a 20 tariff on foreign washing machines earlier this year, and the inflation report Thursday showed more than a 13 percent spike in laundry equipment over the same period last year.
“Expect rising transportation costs to start getting passed on to us, along with the tariff induced jump in costs,” said Peter Boockvar, chief investment officer of Bleakley Advisory Group.
Wage growth has been lackluster since the Great Recession. Recently, unemployment fell to one of the lowest levels since 1969 and business leaders keep complaining they can’t find enough workers. Typically, companies raise wages sharply in this kind of environment, but average hourly earnings are still stuck below 3 percent, a low level historically.
Federal Reserve Chair Jerome Powell has called it “a puzzle” why wages aren’t rising faster. In an interview Thursday with National Public Radio, Powell said “we’re starting to see" some pick up in wages.
“We now just in the last year or so, we have seen wages move up,” he said.
Rising inflation puts the Fed in a difficult position. After years of low inflation, the Fed wants to see prices rises a bit more because it’s a sign of a healthy economy, but the Fed doesn’t want to see the economy overheat, which typically happens when inflation jumps too quickly.
The Fed focuses most on measures of inflation that exclude energy and food, which can be volatile. The Consumer Price Index excluding food and energy rose 2.3 percent in the past 12 months through June. But most Americans are more concerned about whether their pay is keeping up with the cost of living.
“We really close to our target” on inflation, Powell said Thursday. “We want inflation to be symmetrically around 2 percent, so just kind of reaching up and touching it once doesn’t fulfill that goal.”