Inflation ticked up to 3.4% in December. How are wages doing?

Inflation is top of mind on Thursday, with the release of the December consumer price index. It showed that prices climbed 3.4% annually, which is a slight uptick from 3.1% in November.

Inflation peaked at just under 9% a year and a half ago and appears to be heading — at least the Fed hopes — generally toward their ultimate target of 2%.

Meanwhile, after surging along with prices, wage growth has been slowing down too — but not as much. That’s leaving workers with a little more in their pockets at the end of the month.

Americans’ real earnings, the actual purchasing power of a worker’s paycheck after accounting for inflation, have been rising by nearly 1% a year. And the highest earners are getting ahead even more from stocks and other financial assets, per Columbia Business School economist Brett House. 

“People at the very high end of the income spectrum in many cases have seen their total compensation grow even more quickly than workers at the lower-skilled end of the spectrum,” he said.

Fierce competition for service workers coming out of the pandemic drove outsized pay raises, at least for a while, noted Frank Fiorille at payroll processor Paychex. 

“When wage growth was very hot, the job switchers could go get another job and get a pretty good increase,” he said. “We’ve really seen that come off the boil.”

Back in May 2022, workers got an 11% pay boost, on average, by switching jobs, Fiorille added. Now, it’s just over 6%.