• "Real" hourly earnings (wage growth minus inflation) fell by 1.7% from January 2021 to January 2022, the U.S. Department of Labor said Thursday.
• Employers have raised pay to attract workers in a competitive job market. But consumer prices rose at their fastest annual rate in 40 years.
• There are indicators workers may start reclaiming some of their purchasing power. Some industry pay has even outpaced inflation over the past year.

High inflation overshadowed a big increase in wages over the past year, amounting to a nearly 2% smaller paycheck for the average worker, according to federal data published Thursday.

Employers have raised wages at about the fastest rate in 15 years, as they compete for talent amid record job openings and quit levels. But consumer prices for goods and services are rising at their fastest annual pace in four decades, eroding those gains for many Americans.

As a result, "real" hourly wages (earnings minus inflation) fell by 1.7%, to $11.22 from $11.41, in the 12 months through January 2022, the U.S. Department of Labor said Thursday.

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Net weekly earnings fell more over the same period — by 3.1%, to $387.06 from $399.52 — after accounting for a shorter workweek, likely due to pandemic-related impacts on worker schedules.

"The price pressures on households just don't end," according to Greg McBride, the chief financial analyst at Bankrate.

However, substantial pay boosts in some industries, like leisure and hospitality, means some workers still came out ahead.

And data suggests the trend may be reversing — the average worker saw their pay outpace inflation by 0.1% from December to January. It was the second consecutive monthly improvement in "real" earnings.

"You're seeing it beat inflation, just barely," said Elise Gould, a senior economist at the Economic Policy Institute, a left-leaning think tank.

If that monthly trend holds, workers would start to see an increase in their purchasing power, Gould said.

However, the direction of inflation and wages in coming months is difficult to predict.

The Federal Reserve is expected to start raising interest rates in March to bring inflation to heel — though it's unclear how aggressively Fed officials will do so. And many economists believe inflation will moderate in 2022 if supply-chain issues improve and elevated consumer demand for physical goods decreases, for example.

It's also unlikely the current pace of wage growth will continue if the pandemic recedes and workers are drawn back into the labor pool, Gould said. That would increase the supply of workers, making it easier to hire.

Inflation and wage growth

The Consumer Price Index, a key inflation measure, jumped 7.5% in January from a year earlier, the fastest rate since February 1982, the Labor Department reported Thursday.

The index accounts for household costs across many goods and services, from alcohol to fruit, airfare, firewood, hospital services and musical instruments. On average, a consumer who paid $100 a year ago would pay $107.50 today.

Meanwhile, average hourly wages grew 5.7% in January relative to a year earlier, to $31.63, according to a separate Labor Department report, published Friday.

But inflation and pay don't impact households equally — these are average statistics.

About half of the inflation growth in the past 12 months is attributable to energy (like gasoline), vehicles (new and used cars) and "pandemic-affected services" like airfare, hotels and event admissions, according to the White House Council of Economic Advisers.

Consumers who didn't buy such goods and services would have kept more of their paychecks intact.

Monthly growth in consumer prices have decelerated since October, suggesting a slowdown in inflation. But inflation has also become more broad-based, affecting household staples like food, utilities and housing.

"Not only have home prices jumped 20% in the past year, but now many rents are too, rising 0.5% in the past month alone," McBride said. "Nothing squeezes household budgets more than the outsized increases we're currently seeing on costs for shelter and rent."

Rank-and-file workers in some industries have seen their pay growth eclipse inflation, sometimes by a wide margin.

For example, leisure and hospitality workers (those at restaurants, bars and hotels) saw average pay jump 15%, to $17.08 an hour, in the 12 months through January 2022. Earnings jumped by 9.1% among the rank-and-file in transportation and warehousing, too.

Some of the annual inflation is also due the so-called "base effects," Gould said. This means the current rate of inflation is being judged against January 2021, when consumer prices for gasoline and other items were depressed during the pandemic — amplifying the headline figure, she said.