Inflation Reaches 4.2% as Prices Outpace Paychecks
The Iran war and Trump's tariffs are pushing prices higher, and neither will be easy to undo.
There is a lot of political discourse about "affordability," but the meaning of the term can be difficult to pin down.
Is it just a jargony way of talking about high nominal prices? Is it really all about housing? Could it be, as President Donald Trump has suggested, a "con job" invented by Democrats to make his administration look bad? Different people will have different answers, and I suspect we will continue to debate those questions through the midterms and into the 2028 presidential cycle.
But probably the most straightforward way to think about the "affordability" question is the relationship between two figures published monthly by the Bureau of Labor Statistics (BLS): average hourly earnings and the consumer price index. When the former is rising at a faster rate than the latter, the pay for the average worker is rising faster than prices. For that worker, life is getting more affordable.
When inflation is rising faster than wages, however, the opposite is true. And that's what is happening now.
Wages grew by 3.4 percent over the past year, the BLS reported last week. On Wednesday morning, the BLS reported that inflation has climbed by 4.2 percent over the past 12 months, thanks in large part to a sharp increase in prices (fuel prices, in particular) since the start of the Iran war in March.
With prices rising faster than wages, the BLS also reported on Wednesday that "real average hourly earnings"—that is, wage growth once you account for inflation—were down by 0.3 percent in May.
Averages only get you so far, of course. Some Americans are feeling the sting of inflation more than others, depending on their purchasing habits and lifestyles, and wages are never rising for all workers equally. Still, there's no getting around it: Life is less affordable now than it was a few months ago—before the Trump administration steered the country into a war of choice in the Middle East.
And, yes, the runaway inflation that America experienced during the first part of President Joe Biden's term in office was a lot worse than what the country is seeing now. But since early 2023, wage growth had consistently outpaced inflation even as inflation remained above the Federal Reserve's target annual rate of 2 percent.
Inflation is so high that it's erasing all wage gains.
Inflation: 4.2% in May for the past year
Wage growth: 3.4% in May for the past year.Americans are getting squeezed financially. This isn't just "bad vibes" about the economy. There is real pain, especially for middle-class… pic.twitter.com/9f7nlSSm3I
— Heather Long (@byHeatherLong) June 10, 2026
The fact that those two lines have now crossed again should be setting off alarm bells inside the White House—particularly because Trump is directly responsible for the two most acute causes of rising prices. At this point, both will be difficult to fix quickly.
"The two main causes of rising prices were both avoidable: tariffs and the Iran war," said Ryan Young, a senior economist at the Competitive Enterprise Institute, in a statement. "While the president could provide almost immediate relief by scrapping his tariffs, that is unlikely. If the Iran war were to end today, which is also unlikely, that damage would take well into next year to heal."
As was true during the Biden years, inflation can be a difficult beast to tame once it has been unleashed. And the affordability discourse is only going to get louder now.