May 15, 2026
Prices are rising, but paychecks aren't. And many Americans are feeling the pain as their purchasing power dwindles, from the gas pump to the grocery store.
For the first time in three years, inflation has outpaced wage growth. In April, prices rose 0.6%, bumping headline inflation to 3.8%, according to the latest Consumer Price Index data from the Bureau of Labor Statistics (1).
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The annual rate for wage growth, however, sits at 3.6% (2).
Prior to the war in Iran, wage growth was outpacing inflation, which had dropped to 2.4%. But the war — and subsequent energy supply shock — has driven inflation to a three-year high.
But even if the conflict were to end, inflation wouldn't ease overnight. For many Americans, this could be the "new normal," at least for the foreseeable future.
Americans are feeling the squeeze
"Americans will remain financially squeezed for a while," Heather Long, chief economist at Navy Federal Credit Union, told MarketWatch. She expects inflation to peak in the summer, followed by a slow retreat (3).
Meanwhile, she expects wage growth to stay the same. "There just won't be much relief this year, even if the war ends and the Strait of Hormuz reopens," she said.
She told MarketWatch that she's seeing members stash their money in checking accounts to prepare for higher costs. "The rest of the year will be about belt-tightening," she said, as many Americans deal with flat or slightly negative pay (when adjusted for inflation).
But this isn't the case for everyone. In the current K-shaped economy, high-income households continue to accumulate wealth (thanks in part to high stock market returns) while middle- and lower-income households struggle financially as inflation outpaces wage growth.
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For example, middle-income households may find that any bump in pay is neutralized by their decreasing purchasing power, while those making less than $50,000 fall further behind.
But for many middle- and lower-income households, inflation has been growing faster than after-tax wages since January 2025, according to Bank of America data. And, in 2025, nearly a quarter of all households were estimated to be living paycheck to paycheck (4).
The data also shows that higher-income households are seeing their income accelerate. As a result, they're "more able to absorb the recent reacceleration in inflation due to their outsized wage growth, while lower-income households' wage growth has not kept pace."
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Job hugging reflects current financial anxieties
To boost your purchasing power, you may want to look for a better-paying job. But these days, that's easier said than done.
Whether you're fully employed, precariously employed or actively seeking a job, you may not have a lot of leverage when it comes to negotiating a salary increase — though that depends on your industry. (There's a severe shortage of workers in many skilled trades, for example (5)).
During the pandemic we saw the rise of "quiet quitting," but these days the trend is "job hugging." In other words, if you have a job, you cling to it, whether you like it or not.
The labor market is seeing historically low rates of worker turnover, according to data from ADP research. In January, worker turnover hit its lowest level in nine years (6).
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This standstill was most apparent in white-collar jobs — the ones in which workers are most worried about being replaced by AI.
"What this means for the labor market is that workers and employers, for now, are sticking together," ADP chief economist Nela Richardson said in a post (7).
Tightening your belt
With fuel prices near record highs (8), lower-income drivers are starting to cut back on buying gas, according to research from the Federal Reserve Bank of New York (9).
"Cutting back on expenses is harder, however, when higher energy costs seep into other prices," Bernard Yaros, lead U.S. economist at Oxford Economics, told MarketWatch. And that's particularly the case for lower-income households (10).
For example, higher fuel costs drive up production and transportation costs for goods, while also driving up the cost of petrochemical-based products like plastics and fertilizer.
Tightening your belt could mean driving less and carpooling, using public transit or even riding a bike instead. It could mean eating out less, planning meals in advance, switching to generic brands, using coupons and buying in bulk.
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But the best defense for combatting higher costs and lower purchasing power is a strong offense. That includes reassessing your budget and cutting back on non-essential spending, building an emergency fund to cover at least three to six months of expenses and whittling away high-interest debt (such as credit card debt).
If you're falling behind on bills, don't avoid your creditors — call them, tell them what's going on and see if you can negotiate a solution, perhaps a payment deferral, a reduced payment or a lower interest rate.
Avoid making panic-based decisions with your investments and retirement plans. However, it could also be a good time to rebalance your portfolio to ensure it's well diversified (especially if you have a lot of eggs in one basket). Consider talking to a qualified financial advisor or certified financial planner before making any major moves.
Whether you're job hugging or job seeking, consider ways to diversify your income streams, such as taking on a side gig or upskilling to improve your future prospects. For some, it may even be a good time to consider a career switch, such as an in-demand skilled trade.
You may not be able to control gas prices interest rates, but there's a lot you can control, from how you budget to how you manage debt.
Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
U.S. Bureau of Labor Statistics (1),(2); MarketWatch (3),(10); Bank of America (4); Fortune (5); ADP Research (6),(7); Morningstar (8); Federal Reserve Bank of New York (9)
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Vawn Himmelsbach is a veteran journalist who covers tech, business, finance and travel. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, CBC News, Yahoo Finance, MSN, CAA Magazine, Travelweek, Explore Magazine and Consumer Reports.
