American workers have experienced a decline in purchasing power for five straight months, largely due to inflation eroding wage gains. This situation is contributing to the overall affordability challenges that families are facing, partly stemming from the conflict in Iran.
According to the Bureau of Labor Statistics (BLS) Real Earnings report, real average hourly earnings for private nonfarm employees decreased by 0.3% from the previous year in August. While nominal wages rose by 3.0% year-over-year in September—a slight decrease from the 3.1% increase in August—rising inflation followed President Donald Trump’s initiation of military operations in Iran, which saw energy prices spike and affect costs across the economy.
This five-month downturn is quite a flip from much of 2024 and 2025 when wages generally outpaced inflation, allowing workers to experience an increase in real earnings.
“Real wage growth was negative for the fifth month in a row in August,” former Obama administration official Steve Rattner noted recently on X.
Gas prices surged by 3.9% in August, contributing significantly to the monthly rise in consumer prices, while the broader energy index increased by 2.1%. In fact, energy prices overall were up by 16.3% year-over-year, including a notable 27.4% jump in gasoline costs.
Food prices continued their upward trend as well. The food index increased by 2.7% from the previous year in August, with a 2.2% rise for groceries and a 3.4% increase for dining out. Prices at full-service restaurants saw an even steeper rise, climbing by 3.5% over the past year.
In a May interview, Trump stated that the financial pain Americans were feeling wasn’t influencing his strategy regarding the Iran conflict, even after a question about whether rising inflation and prices were prompting him to seek a resolution. “Not even a little bit. The only thing that matters, when I’m talking about Iran, is they can’t have a nuclear weapon,” he said. “I don’t think about Americans’ financial situation, I don’t think about anybody.”
Moreover, many Americans are struggling with high levels of debt, with total household debt reaching $18.8 trillion in the second quarter. Credit card balances rose to $1.26 trillion, according to a report from the Federal Reserve Bank of New York, and new delinquencies for credit cards and auto loans remain concerningly high.
The burden of borrowing costs adds to this pressure; for instance, the average rate on a 30-year fixed mortgage jumped to 7.28% at the beginning of October, up from 6.66% just a month earlier, according to Freddie Mac.
In response to these financial strains, many consumers are increasingly utilizing buy now, pay later (BNPL) options for everyday purchases. Over a quarter of BNPL users reported making late payments at least once in the past year, and those using these loans for necessities like groceries faced higher chances of incurring late fees or overdraft costs, based on Federal Reserve research.
A Goldman Sachs survey highlighted that 42% of workers earning under $100,000 live paycheck to paycheck, and this situation also applied to 36% of those making over $300,000.
The BLS is set to release the inflation and real earnings data for September on October 14.
