Recent data shows that prices in July were 3.4% higher than they were a year ago, which is slightly down from June’s 3.5% rate although we are still well above the Federal Reserve’s 2% target.

Core inflation, which excludes food and energy prices, stood at 2.5%. Inflation has moderated over the past two months largely due to falling gasoline prices although they’ve edged up in August and now stand at $4.30 per gallon.

In July, gasoline fell 2.9%, but compared to a year ago, gasoline is up nearly 25%. Given where gas prices have been in August thus far, it’s plausible we may see overall inflation tick up again when the August data is released. Electricity and natural prices are up 4.3% year over year.

Other components driving inflation include eating out, which continues to get more expensive with a 3.4% increase over the past year. Airline fares are up an astounding 26% compared to a year ago.

Perhaps more concerning is that wages are not keeping pace. Nominal wages, which don’t account for inflation are up 3.2% over the past year, but with an inflation rate of 3.4%, we end up with inflation-adjusted wages actually down in July 0.2% compared to a year ago.

Wages tend to rise faster when workers can easily move between jobs and employers have to compete for them. Right now, hiring is largely stagnant due to labor shortages, but also businesses are navigating tariffs, higher input costs and broader economic and political uncertainty. Businesses do not typically hire robustly when their costs are higher, and the economic future is ambiguous.

Indeed, the labor market has shown some softening over the past three months. The economy lost 23,000 jobs in July, and May and June payroll growth was revised downward by a combined 103,000 jobs. The unemployment rate remained at 4.1%, but that low rate masks that the U.S. has a subpar labor participation rate, partially due to retirees and partially due to fewer working-age people who actively work or are looking for work.

Many economists are speculating that AI also is dampening hiring for early career workers, which is an anomaly. I am just old enough to be able to say that typically, when new technologies emerge, younger workers adapt faster and therefore get hired more easily, often crowding out older workers. This time does appear to be different, with older workers being favored as they bring ample experience that provides context to enabling more targeted AI prompts and better general critical thinking and understanding of (now) easily acquired information. Go, boomers (my hubby) and Gen-Xers (me).

There will be another jobs report and another inflation report before the Federal Reserve meets in mid-September. Somewhat moderating inflation, combined with a stagnant labor market and declining real wages, makes the case quite a bit weaker for a September interest rate hike, at least as of today.

Tatiana Bailey is executive director of the nonprofit Data-Driven Economic Strategies. Other Gazette articles, TV segments, DDES monthly economic dashboards with technical explanations, and how to sponsor their work can be found at ddestrategies.org.