Red-hot inflation gave most Americans a pay cut in January

The tightest labor market in years is fueling rapid wage gains for most workers – the only problem is that red-hot inflation is quickly eroding those increases. 

The Labor Department reported on Friday that average hourly earnings for all employees actually declined 1.7% in January from the same month a year ago when factoring in the impact of rising consumer prices. On a monthly basis, average hourly earnings increased by just 0.1% in January, when factoring in the 0.6% inflation spike. 

By that measure, the typical U.S. worker is actually worse off today than they were a year ago, even though nominal wages are rising at the fastest pace in years. That's because inflation is also surging: The government reported Thursday morning that the consumer price index (CPI) rose 7.5% in January from a year ago, marking the fastest increase since February 1982, when inflation hit 7.6%. 

The CPI – which measures a bevy of goods ranging from gasoline and health care to groceries and rents – jumped 0.6% in the one-month period from December.