US wage growth falls to five-year low as pay trails inflation again

American workers’ pay rose at its slowest pace in more than five years in the year to September, new official figures showed on Friday 30 October, with wages failing to keep up with prices for a second quarter in a row.

The US Bureau of Labor Statistics said wages and salaries rose 3.1% in the 12 months to September, down from 3.6% a year earlier and the smallest increase since the first quarter of 2021. Total labour costs — wages plus benefits — rose 3.4% over the year, the same pace as in the year to June. In the July–September quarter alone, wages rose 0.7%, after a 0.9% rise in the previous quarter.

After adjusting for inflation, private-sector wages fell 0.6% over the year, following a 0.3% fall in the year to June. Benefit costs rose faster than pay, up 3.9% over the year. The Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index, rose 3.6% in the year to September, the government reported on 29 October.

Why it matters

The figures mean the average pay rise bought less than it did a year ago, squeezing household budgets even as the jobs market stayed broadly stable, with low layoffs but lacklustre hiring. The numbers come from the Employment Cost Index, which the Federal Reserve watches closely because it tracks pay for the same jobs over time, rather than being skewed by workers moving between jobs.

For the Fed, the slowdown is reassuring on one front: it suggests the labour market is no longer a significant source of price pressure, even though inflation remains elevated. The central bank held its benchmark interest rate in the 3.75%–4.00% range on 28 October, and economists expected it to raise borrowing costs in December.

What happens next

The next Employment Cost Index release, covering the quarter to December 2026, is scheduled for 29 January 2027. Until then, the October jobs report and the next inflation figures will show whether pay growth keeps cooling or starts to catch up with prices.

Sources

• https://www.bls.gov/eci/news-releases.htm (U.S. Bureau of Labor Statistics, 30 October 2026)
• https://www.kitco.com/news/off-the-wire/2026-10-30/slower-wage-growth-curbs-us-labor-costs-third-quarter (Reuters via Kitco, 30 October 2026)
• https://www.morningstar.com/news/marketwatch/20261030184/wage-growth-hits-5-year-low-as-american-workers-find-their-take-home-pay-is-stretched-thinner-and-thinner (MarketWatch via Morningstar, 30 October 2026)

This article is for general information and education only. It is not legal or financial advice.