The No. 1 driver of America’s affordability squeeze just got worse
America’s living-cost crisis isn’t a mystery of numbers alone; it’s a straightforward math problem: inflation surged years ago, but most wages haven’t kept pace since. The latest employment data underscores that gap, and a separate inflation update this week could reveal an even sharper pinch for households.
In November, the average hourly wage rose to $36.86, up 3.5% over the previous year, according to the Bureau of Labor Statistics. On the surface, that sounds like a decent raise. Yet when you compare it to a 3% annual rise in consumer prices, the increase barely covers the rising cost of living, making it the smallest annual paycheck growth for Americans since May 2021. And the average is skewed by a 4% jump among top earners; middle-income workers gained about 2.3%, while low-income households saw only a 1.4% lift over the year.
Soaring paychecks in a context of persistent inflation translate into a stubborn affordability squeeze, with the gap between wages and prices widening again. As Joe Brusuelas, chief economist at RSM US, observes, wage growth is settling into a long-running affordability crisis.
The peak pace of hourly pay growth hit 5.9% in March 2022—an unsustainable surge that soon cooled. Since then, growth has decelerated partly because inflation has moderated from its four-decade high in mid-2022. Yet a weaker job market is also dampening wage gains. The economy has shed jobs in three of the past six months, and 2025 is tracking toward the weakest job growth since the pandemic-era downturn in 2020.
Meanwhile, workers are staying put longer: the rate of voluntary quits fell to a five-year low in October, suggesting fewer opportunities or less incentive for employers to offer bigger raises to keep or attract staff.
That context helps explain why Federal Reserve Chair Jerome Powell has framed the solution as strengthening the labor market to improve affordability. The Fed’s rate cuts over three meetings were intended to reduce borrowing costs for businesses, hoping to spur hiring and wage growth. In theory, a healthier labor market would give workers more job options, pressuring firms to raise pay to attract and retain talent.
Powell argues that, if income growth eventually outpaces price increases, people will start to feel that costs are more manageable. He has emphasized that the goal is to balance controlling inflation with sustaining robust wages so households feel economically secure.
But prices aren’t simply backing off. Inflation has crept back up from a low point of about 2.3% in April and is again around 3%. Powell attributes much of this uptick to tariffs implemented under the prior administration, which he says will not cause long-term inflation to spiral; the impact should be a one-time price adjustment rather than a perpetual rise.
Yet the nearer-term outlook remains cloudy. Prices could still rise further as companies absorb tariff costs, squeeze margins, and pass some of those costs to consumers next year, according to JPMorgan analysts. Thursday’s Consumer Price Index is expected to show inflation at roughly 3.1% on an annual basis, narrowing but not eliminating the gap between wage growth and living costs.
All of this points to a stubborn perception: America’s cost of living feels less affordable than it did a short while ago, even as policymakers tout efforts to stabilize inflation and strengthen the labor market.
If you’re curious about how these dynamics interact in everyday life—how wage growth, inflation, and policy moves translate into real groceries, rent, and bills—this interplay is exactly where many households feel the squeeze most.
What’s your view: should policy focus more on accelerating job creation and wage growth, or on directly cooling prices through other tools? Share your thoughts in the comments.
Contributors: CNN’s Matt Egan and staff.
