• • • Inflation is chewing up wage gains, and then some. Hourly earnings and real hourly earnings year-over-year Nominal wages are purportedly up about three percent from a year ago, but it’s a mirage. For six months, inflation-adjusted wages have been negative. Real Hourly Earnings Year-Over-Year April Total Private: -0.20, April Production: -0.20 May Total Private: -0.80, May Production: -0.77 June Total Private: -0.08, June Production: -0.04 July Total Private: -0.09 July Production: -0.05 August Total Private: -0.23, August Production: -0.15 September Total Private: -0.67, September Production: -0.58 Real and Nominal Hourly Earnings Percent Change Month-Over-Month For two consecutive months and five out of the last seven, real wages are down month-over month. These numbers are based off the CPI. The Fed’s preferred measure of inflation is the Personal Consumption Expenditures (PCE) price index, but wages are down vs the PCE as well. Year-over-year PCE has been 3.4 percent or higher since March. PCE stats are only through August. Its report lag a few weeks. CPI and PCE Are Both Understated Neither measure counts property taxes, homeowner’s insurance, or home prices. Food is understated because of improper weights. Medical insurance costs are ridiculously calculated based on retained earnings, not consumer prices. Yet, economists wonder why people are more upset about inflation than what the numbers show. Related Posts October 14, 2026: CPI Hotter than Expected in September, Up 0.65 Percent The Fed should hike in October, but won’t until December. October 15, 2026: Trump Promised to Reduce Energy Bills in Half. How’s He Doing? Let’s check in on a Trump campaign promise. October 15, 2026: Producer Prices Rise a Hot 1.3 Percent in September This is the largest PPI advance since rising 1.7 percent in March 2022 Nominal wages are purportedly up about three percent from a year ago, but it’s a mirage. For six months, inflation-adjusted wages have been negative. Real Hourly Earnings Year-Over-Year Real and Nominal Hourly Earnings Percent Change Month-Over-Month For two consecutive months and five out of the last seven, real wages are down month-over month. These numbers are based off the CPI. The Fed’s preferred measure of inflation is the Personal Consumption Expenditures (PCE) price index, but wages are down vs the PCE as well. Year-over-year PCE has been 3.4 percent or higher since March. PCE stats are only through August. Its report lag a few weeks. CPI and PCE Are Both Understated Yet, economists wonder why people are more upset about inflation than what the numbers show. Related Posts October 14, 2026: CPI Hotter than Expected in September, Up 0.65 Percent The Fed should hike in October, but won’t until December. October 15, 2026: Trump Promised to Reduce Energy Bills in Half. How’s He Doing? Let’s check in on a Trump campaign promise. October 15, 2026: Producer Prices Rise a Hot 1.3 Percent in September This is the largest PPI advance since rising 1.7 percent in March 2022 Subscribe to MishTalk Email Alerts. Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time. This post originated on MishTalk.Com Thanks for Tuning In! Mish Mike Shedlock You have to give taconomics credit for its consistency. It is interesting to think about this in conjunction with the putatively growing GDP. Falling real wages are one of the adjustments recessions typically make to make businesses profitable again. To wit, you wouldn’t expect to see it in a thriving economy. We saw this also during much of the administration for which Biden was the figurehead. Ongoing dt and dt2 consumer sentiment seems to best integrate the individual data from ongoing jobs, unemployment claims, inflation, real wages, and production data (and likely the timing of upcoming recession). Beep boop And the Fed is debating whether or not to implement another minuscule 25 bps rate hike at their next policy meeting. It is like trying to extinguish a raging fire with a squirt gun. IIRC, real wages peaked some time in the 1970s. https://www.epi.org/publication/wage-suppression-in-10-charts/ post ww2 was the easiest time. half the world was flattened from 2 world wars……..the usa was on top of the world. easy peasy. and quite unique. by the time the european and japanese got on their feet and rebuilt factories…….the imports started heading to usa………….plus the greatest generation were grifters. LBJ and Nixon and Kennedy’s……………those were the men in power The greatest generation raised the boomers if that tells you anything. bingo. watch the documentary, free on youtube, “century of the self”. 4 parts. i was dumbfounded that this semester my current psychology class prof assigned it as part of the syllabus. best documentary ever about amerika the past century. YUP Share of Labour Compensation in GDP at Current National Prices for United States (LABSHPUSA156NRUG) | FRED | St. Louis Fed The use of retained earnings to measure medical insurance inflation is rather ridiculous. The BLS claims this is necessary to avoid double counting across other categories like hospital services, but it would seem there should be better ways of doing this. Part of the problem is that the CPI is commonly assumed to mean the cost of living, but that is not what it measures. For example, the CPI assumes both substitution (you like meat more than fish, but the price of meat goes up so you buy less meat and eat more fish) and hedonic improvements (the price of the washing machine went up, but it now has WiFi so it is a better machine and its price actually went down). CPI is more a theoretical economic model than a true measure of the cost of living. The PCE is even more theoretical than the CPI for several reasons. For example, every hedonic adjustment applied to the CPI goes strait into the PCE, and the PCE is more agressive on substition adjustments (monthly vs. annually) than the CPI. Bottom line–neither the CPI nor the PCE was ever designed to track “money out of your wallet”, and by design both will give values lower than your actual increase in outlays. There is no government index that tracks a pure, unadjusted “money out of your wallet” cash register tally. The closest is the BLS Average Retail Prices database. “CPI is more a theoretical economic model than a true measure of the cost of living.” And who cares about theoretical models? What exactly is their purpose and why does the Fed use them to base policy decisions? You’ve unknowingly written a great thesis for the elimination of all these academic ivory tower clowns. Americans are primarily concerned with quality of life and that is largely driven by the cost of living. That’s what politicians should be focused on not anything else. It’s good to try to explain the ‘why’ something should be measured, and how it’s measured (with its downsides). But you could also check the source of the definition and data collection (here, BLS) first: https://www.bls.gov/cpi/questions-and-answers.htm “The CPI measures inflation as experienced by consumers in their day-to-day living expenses.” The link above should be required reading of all Mish commenters – if they want to be taken seriously and not just spout off gut opinions If you want to quote the BLS directly, here is a direct copy of what the BLS states about CPI versus cost-of-living: The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. We use a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, and not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this role to also take into account changes in other governmental or environmental factors that affect consumers’ well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime, that would constitute a complete cost-of-living framework. Since the CPI does not attempt to quantify all the factors that affect the cost-of-living, it is sometimes termed a conditional cost-of-living index. The issue with the sentence you quoted “The CPI measures inflation as experienced by consumers in their day-to-day living expenses” is around what definition is being used for inflation. The common person may use a definition of inflation that tracks the actual price of an item, but that is not the definition being used by the BLS. I agree with you generally, especially in your earlier comment “Part of the problem is that the CPI is commonly assumed to mean the cost of living, but that is not what it measures.” ‘commonly assumed’ comes from people’s perception (especially the commenters here) – not from the BLS. The BLS measures the CPI as it says it does. Then people/commenters get upset when the published CPI does not match their commonly assumed perception, even to the point of claiming purposeful fraud or manipulation by the BLS. People want to claim the CPI is ‘wrong’ when they don’t even know the definition, true calculation or use of CPI. If someone is complaining about a statistic they are too lazy to look up and understand, they either want to project an uninformed opinion (which is fine) or they are a hubris-spewing moron BTW, we’re all wasting our time if we can’t start discussions with commonly accepted definitions. “The common person may use a definition of inflation that tracks the actual price of an item, but that is not the definition being used by the BLS.” Inflation is not an actual price of one item, it’s an increase in the general prices of all goods and services consumed in an economy over time “and by design both will give values lower than your actual increase in outlays.” This is NOT true for everyone whatsoever – much less the “design” of the CPI The CPI measures changing prices of an ‘average’ market basket of goods (actually) purchased by an ‘average’ family. And these ‘averages’ are not truly experienced by any one family. I don’t rent or didn’t buy a new home this past year. I did not buy a new or used vehicle. I did not pay for college tuition for my kids, nor did I pay for daycare expenses. No one in my family got an expensive MRI or other major healthcare this year…. But all of those are measured in the CPI – because they are major purchases made by someone in the economy. So by ‘design’ neither I nor anyone else’s expenditures are perfectly measured (or told to you they were). But that does NOT mean the BLS is understating “actual increase in outlays” by “design”. My middle class family in the 1960s had half an acre of land in southern California with plenty of open space all around, cars aplenty, cheap abundant water and fresh food, college budgets for kids. I defy you to tell me how a WiFi washing machine is better, except as an easy backdoor for hackers to distribute rage bait on the Internet, Now southern California is crowded, polluted, crime-ridden, very mentally unhealthy, more fire- and flood-prone than ever before. The wildlife once abundant is basically all dead. Housing on every square inch, only likeable to someone misled in their aspirations and expectations. On almost every measure the quality of life is grossly worse, except some medical advancements, and this here Internet.Yes, my utility function is different from yours. Proudly and grossly so. wrong. the worst decade in modern history, for wild fires in CA was the 1930s dustbowl decade. of course if you take a more anthropologic or geologic or astro physical look, CA had much worse spells of “natural disasters” over the past few hundreds of thousands millions of years. ps i was in sonoma county for 2020. that was a brutal fire season. our little village surrounded by 3 wildfires. one day the sun was blocked by smoke so thick, it was pitch dark at 11am………..end times it seemed. i prayed to my goddess melania for salvation. Actually I fully agree with you. It is the BLS who incorporates hedonic improvements into the CPI. I too think that is mostly BS. But it explains why there is a disconnect between how the Fed views “inflation” versus how a real world person views “inflation”. There are about 4x as many people as there were then, and they’re all competing for the same stuff. CPI is used to artificially minimize COLA increases. Nothing more and certainly something less. I absolutely do NOT like Trump. His actions and “policies”, if you can call them that, are only making everything worse. However he did not start this trend. Look at labor’s share of GDP and profit’s share of GDP and you can see where we are headed. There are many policy changes that could be made that would help, including changes in consumer contract law, anti-trust enforcement, etc. that would actually strengthen the economy and the consumer by promoting more competition. China is actually more capitalist than the United States. Yeah, that’s what an unnecessary war will do to you. But for the four previous years, average hourly earnings were outpacing CPI: https://govspending.org/compare/cpi-vs-wages But I still heard alot of people complaining about inflation during those four years – presumably from their COVID memories? Great post, Mish. Fox News viewership has fallen by a third, and Truth Social daily views down by half. Trump’s influence is waning. … with every data center that goes up in smoke. With the FED running it hot, this wasn’t supposed to happen. Inflation is the most destructive force capitalism encounters. Well this cant be right. We are two years into Trumps term and the tariffs and deportations were going to make wages soar or was it sore? Farmers are complaining they dont have enough labor so wages should be soaring no? Where are the MAGA morons to explain? trump is not 2 years in until jan 20, 2027. but i think the halle bopp cult might be the way donald and elon launch their dumbfuck cult to salvation. the flyover country of south brooklyn to bumb fuck middle amerika is so rich with dumbfuckery it makes the great documentary film, ” idiocracy,” dead on correct. My long term bet is Elon will end up with 10k bastard babies he will produce before he launches off to his Mars cult project.  Like Halle Bop cult “… every kid on this [Little League] field was fathered by Bill Brasky! Every one of ‘’em!” — SNL It shouldn’t be hard to coax Grok to tell us Elon is Bill Brasky. ha ha ha. i had to watch a clip of SNL about that. Ukraine smoked another data center last night… so it’s going to be quiet from the magadroid for a while. Just for fun, one of my gurus, Patrick Boyle, funniest deadpan guy in finance, has a different thesis about that, and a grand tour of bots in the global rage bait industry. https://www.youtube.com/watch?v=JnceIDVMZyQ You will receive all messages from this feed and they will be delivered by email.