Americans Are Giving up on Beating Inflation: Just One in 12 Think Their Wages Will Outpace Rising Prices

Only one in 12 Americans now expects their income to grow faster than inflation over the next year, a sharp drop from nearly one in five at the end of 2024, according to new data that suggests households are increasingly resigned to rising prices.

'Across all consumers, only 8% expect their income growth to exceed inflation in the year ahead, down from 18% in December 2024,' Joanne Hsu, director of the University of Michigan's Surveys of Consumers, said.

The university's featured chart for August shows the same decline, with roughly one in 12 consumers now expecting their income gains to outpace rising prices. The survey measures expected income growth rather than wages specifically.

Inflation Expectations Edge Higher

Consumers also raised their expectations for inflation over the next year. The University of Michigan's preliminary August reading showed year-ahead inflation expectations rising to 4.3%, from 4.2% in July. The August figure is also above the 3.4% recorded in February, before the Iran conflict began.

Long-run inflation expectations, covering the next five to 10 years, remained at 3.3% for the third consecutive month. Real income refers to the purchasing power of income after accounting for changes in prices.

Hsu said the decline in expectations that income will outpace inflation reflected the belief that 'high prices will continue to be burdensome'.

Sentiment Index Shows Broad Weakness

The income finding came as overall consumer sentiment deteriorated in August. The University of Michigan's preliminary Index of Consumer Sentiment fell to 51.0 from 55.2 in July, a 7.6% monthly decline. It was also 12.4% below its level a year earlier.

The Index of Consumer Expectations fell 8.7% from July to 50.6, while the Current Economic Conditions index declined 5.5% to 51.8. Expectations for business conditions also weakened. The outlook for the next year fell 11%, while the five-year outlook dropped 17%.

Lower-Income Americans Feel the Strain

The decline in sentiment was not evenly distributed. The University of Michigan said the largest reductions in August were recorded among older consumers, lower-income households and people without a college degree.

Those groups are more exposed to persistent price increases, which can take up a larger share of household budgets.

The survey also shows a shift in expectations about future finances.

Consumers who expect their income to lag inflation may anticipate less room for discretionary spending or saving if those expectations persist.

The latest reading does not show that household incomes are actually falling behind inflation for every consumer. It measures expectations over the coming year.

But the change in expectations is substantial. In December 2024, 18% of consumers expected their income growth to exceed inflation. By August 2025, that share had fallen to 8%.

Spending Plans and Outlook in Focus

The broader survey points to growing caution about the US economy. While views of personal finances declined only modestly in August, expectations for future business conditions weakened more sharply. The decline in sentiment also occurred across political groups, with Republicans recording the largest monthly drop.

Hsu said the weakness was broad-based, although the sharpest declines were concentrated among groups more vulnerable to inflation. For households already facing higher costs, income gains may feel less effective in offsetting price increases.

The University of Michigan is due to release its final August consumer sentiment results on August 28. The preliminary figures remain subject to revision.