Inflation Eases, But Real Wages Decline as Cost Pressures Persist

Inflation eased slightly in the last month but remains elevated, according to new figures, as cost-of-living pressures persist for employees.

The consumer price index (CPI) increased 0.1% on a seasonally adjusted basis in July and rose 3.4% year-over-year, the U.S. Bureau of Labor Statistics (BLS) reported Aug. 12. That’s a slight improvement from June’s reading of 3.5% but a more substantial decline from May’s reading of 4.2%.

For HR leaders, the latest data offers a mixed picture: Inflation is moving lower, but employees are still contending with higher prices.

The effects of the Iran war continue to influence cost of living, while gas prices have been especially volatile in recent months. Although a recent drop in gas prices has been a positive change, including for employees under financial stress, it’s unclear if the dip in fuel prices will sustain. Gas prices have risen again in recent weeks amid continued uncertainty surrounding the conflict and oil supplies. The national average price per regular gallon of gas is $4.03 as of Aug. 12, according to AAA, a jump from the $3.87 cost a month ago.

The BLS reported that the index for energy decreased 1.5% in July, after falling 5.7% in June, while the gasoline index decreased 2.9% over the month. Overall, the index for energy rose 14.7% over the past 12 months due in large part to the index for gasoline soaring 24.6% over the same period.

Article: Iran War is Lifting Gas Prices. Should Employers Help?

Core inflation, which excludes volatile food and energy prices, increased 0.2%, rising 2.5% over the year, following a 2.6% increase over the 12 months ending in June.

The inflation report comes as employers continue to grapple with persistent employee concerns about affordability, even as price pressures show signs of easing. Employee financial confidence has fallen to its lowest level since 2012, according to MetLife, while financial literacy has also fallen to a 10-year low, according to a study by investment giant TIAA and Stanford University’s Global Financial Literacy Excellence Center.

Meanwhile, 68% of employees experienced at least some financial stress in the past year, and 45% say financial concerns increased their mental stress, according to recent data from Prudential Financial. As a result, many employers say they have been leaning on financial wellness benefits.

Meanwhile, real average hourly earnings for all employees decreased 0.1% from June to July, seasonally adjusted, the BLS reported separately Aug. 12. This result stems from an increase of 0.1% in average hourly earnings combined with an increase of 0.1% in the CPI.

For employers, the data could reinforce pressure from employees for higher pay, targeted financial wellness support, and benefits that help offset household costs.

The BLS findings on earnings come on the heels of various surveys finding that salary increases in 2027 will decline modestly from 2026 levels but remain largely stable overall. Data from consulting firm WTW shows that average salary increase budgets for U.S. companies in 2027 are expected to average 3.4%, down slightly from the actual 3.5% increase budget reported for 2026. Similarly, Gallagher found that salary budget increases are stabilizing between 3% and 3.5% annually.