Inflation in the U.S. has risen by 3.4% in August compared to the previous year, while average hourly earnings have only increased by 3.1%, resulting in a decline in real average hourly earnings by 0.1% from July and 0.3% from a year earlier.
Heather Long, chief economist at Navy Federal Credit Union, highlighted that many Americans are feeling financially squeezed as their incomes fail to keep pace with rising prices, particularly due to surging energy costs linked to geopolitical tensions.
The increase in gasoline prices, which rose 3.9% in August, has been a major contributor to the overall inflation, with diesel prices reaching $6 per gallon for the first time amid supply disruptions. Long noted that the improvement in wage growth relative to inflation seen earlier this year has reversed, making it difficult to foresee a significant decrease in inflation in the near future.
This prolonged financial strain is already affecting consumer behavior, with households shifting their shopping habits towards discount retailers and warehouse stores to stretch their budgets. As consumer spending accounts for about two-thirds of U.S. economic activity, this cautious approach could have broader implications for the economy moving forward