The Buying Power of American Consumers Has Increased for the Initial Time in More Over Two Years

The latest report from the Bureau of Labor Statistics (BLS) indicates that from May 2022 to May 2023, real average hourly earnings—employee pay after taking inflation into account—increased by 0.2%. The rise, which is the first since March 2021, shows that inflation is changing, particularly in terms of how it affects consumers’ wallets.

The cost of consumer goods and services has increased by 4% year over year, according to the BLS June inflation data, down from a four-decade high of 9.1% in June 2022.

Why It Matters

The Federal Reserve’s target rate for inflation is 2%, so the annual rate of inflation continues to be high, but an increase in real average earnings is a promising sign that consumer purchasing power is now beginning to recover from chronic inflation.

The Federal Reserve is easing off on raising interest rates.

At its meeting in June, the Federal Reserve refrained from raising interest rates for the first time following ten rises in a row. The committee predicted that there would be further rate increases in 2023, although they only anticipated two during the remaining four meetings.

What’s at Stake

The Federal Reserve’s main strategy for combating rising inflation rates has been to raise interest rates. The federal agency’s decision to lower its pace demonstrates that the economy is doing well as the inflation rate continues to decline. Nevertheless, because the federal funds rate is still high, borrowing will stay pricey until the rate starts to decline.