Capitol Report: Working Americans reap benefits of tepid inflation and rising wages

Workers are catching a break: Wages are rising and inflation is falling.

Falling inflation and fatter paychecks are giving boost to American workers and their families.

The increase in real or inflation-adjusted wages climbed to a yearly rate of 1.7% in January, marking the biggest gain since the middle of 2016.

It’s even better for rank-and-file workers — that is, everyone but the bosses. Their inflation-adjusted pay has climbed 2.1% in the past year

Just last summer, wage growth was basically zero after taking inflation into account.

“While we have not yet seen real wages rise to the levels of other late-stage expansions, we’re heading in the right direction,” said Robert Frick, corporate economist at Navy Federal Credit Union.

Read: Inflation flatlines in January thanks to lower gas prices, CPI shows

The increase in earnings comes just in the nick of time. The recent government shutdown is likely to delay tax refunds this year for millions of Americans. Many analysts also predict refunds will be smaller this year because of changes in the tax code wrought by the 2017 Trump tax cuts.

Workers are benefiting from two trends.

Inflation has taken a deep dive since last summer owing largely to falling gas prices. It costs a lot less to fill up, saving Americans billions of dollars.

The tight labor market is another trigger. The lowest unemployment rate in half a century and scarcity of skilled workers has forced companies to pony up higher pay. Hourly wages rose 3.2% in the 12 months ended in December, just below a post-recession high.

For years wages grew 2% or less annually, preventing families from getting ahead.

Read: The rise of the robots and decline of inflation: How AI is keeping prices low

What’s been a pleasant surprise is that inflation remains low even though companies have to pay more for labor.

Read: Inflation? What inflation? Falling price pressures clear runway for economy

Also Read: Has the economy found a sweet spot? Job creation is soaring, but not inflation

The low rate of inflation even persuaded the Federal Reserve to stop raising interest rates for the time being, fueling a big rally in the U.S. stock market DJIA, +0.34% SPX, +0.30%  since the start of the new year.

The central bank’s wait-and-see strategy is likely to prolong an economic expansion that’s almost 10 years old and will soon become the longest ever. That’s more good news for American workers.

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