US Workers Lose Buying Power After War Drives Up Prices

wi]ymb8]od1z4ef4}9gnj]u4_media_dl_2.png Bureau of Economic Analysis

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(Bloomberg) — Whether they work in restaurants, offices or warehouses, Americans have seen their paycheck eaten up by a surge in everyday costs recently.

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Inflation has outstripped wage growth in key private-sector industries for two straight months, according to data compiled by Bloomberg. The sharp drop in buying power for employees in sectors ranging from healthcare to finance and retail was largely the result of a surge in energy prices driven by the Iran war, but the dynamic is likely to stick even as gasoline gets cheaper.

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Gas prices, which have dropped since the US and Iran agreed to an interim peace deal, are still almost $1 a gallon higher on average than they were before the conflict started at the end of February, based on American Automobile Association data. But war-driven inflation in other parts of the economy, like food and transportation, has yet to fully materialize.

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And with wage growth already slowing, that means many households will likely continue to tap into savings and take on debt to support spending, even after inflation peaks.  

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“I don’t think it’s going to be a great year for real disposable income growth,” said Stephen Stanley, chief US economist at Santander US Capital Markets LLC. “And not everybody has the luxury of being able to maintain their spending patterns without getting into trouble.”

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The Federal Reserve’s preferred inflation measure probably accelerated in May on a monthly and annual basis. Economists in a Bloomberg survey anticipate a 3.4% increase in the personal consumption expenditures price index excluding energy and food, which would mark the fastest year-over-year pace since October 2023.

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Meanwhile, the government report set to be published Thursday will also likely show that consumers continued powering ahead, even after three months of declines in real disposable income.

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Credit-card usage has been on the rise despite high interest rates, and the saving rate is currently at an almost four-year low. Higher-than-usual tax refunds thanks to President Donald Trump’s signature tax legislation have provided a temporary cushion.

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At the 2026 Morgan Stanley US Financials Conference in New York City this month, Marianne Lake, who leads JPMorgan Chase & Co.’s consumer and community bank, said she’s monitoring the small but increasing number of people for whom wage growth isn’t keeping pace with price increases.

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The recent drop in real wages at the national level was largely the result of the energy shock and the consumer continues to be surprisingly resilient, Lake said. But there are fewer buffers to future shocks, she added.

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“It’s possible that, if inflation were to be higher for longer, that this sort of trend of wages keeping up with inflation could be at some risk,” she said.