Raises And Inflation Are In A Tug-Of-War, and Inflation Is Winning

Raises And Inflation Are In A Tug-Of-War, and Inflation Is Winning Off The Charts: The Visual Says It All Diccon Hyatt Wed, September 16, 2026 at 4:48 AM GMT+9 2 min read Workers are losing more of their purchasing power. Credit: Spencer Platt / Getty Images Key Takeaways Real hourly earnings have fallen 0.7% since the start of the Iran war, as high fuel prices have pushed up inflation faster than wages have risen.

The decline in household buying power means consumer spending increasingly depends on affluent households flush with stock market wealth driven by the AI boom.

Rising prices are eroding the buying power of a typical paycheck.

Average hourly earnings took a step down in August, as the consumer price index rose faster than average hourly pay. Inflation-adjusted, or "real," earnings have been on a downward trend since February and are now just below their level in May 2025. Real wages fell 0.7% between February and August.

This decline in inflation-adjusted or "real" wages is largely due to higher fuel prices. It is less severe than the downturn that took place in the post-pandemic years, but still represents a setback for household budgets. It also poses risks for the broader economy, which has become more reliant on stock market gains to fuel consumer spending.

Because 68% of the GDP is from consumer spending, growth could take a hit if people start trimming their household budgets to cope with rising prices for necessities like food and gas.

The downturn in worker buying power undermines consumer confidence and poses risks to the economy if people cut back on spending.

"Clearly, the resilience of consumer spending this year has been bolstered more by copious tax refunds, the drawing down of savings and the wealth effect from a booming stock market than from worker paychecks," Bob Schwartz, senior economist at Oxford Economics, wrote in a commentary.

Because so much of consumer spending is being powered by affluent households whose budgets are flush from the stock market boom being fueled by the AI expansion, the broader economy has become more vulnerable than usual to a downturn in that industry. The AI spending spree propping up the stock market could lose momentum if the Federal Reserve raises interest rates, or if public backlash against AI technology hinders the construction of data centers, for example.

"While non-trivial prospects, we don't expect these events to bring down the economy in the foreseeable future," Schwartz wrote. "Yet it is hard to ignore warning signs linked to both the myriad external shocks as well as the waning influence of workers."