Better Off? Income Beat Inflation In 2025, Poverty Dropped To Record Low Amid Rising Earnings
2025 was a good year for American households, the latest data from the U.S. Census Bureau shows, with real household median income rising to $87,460, the highest on record, while the percent of the population below the poverty line fell to 10.2 percent, a record low after 2019’s 10.5 percent.
The news came even as the unemployment level rose slightly from 6.9 million in December 2024 to 7.5 million in December 2025, making 2025’s gains largely the product of higher earnings.
Even with those numbers, labor markets are still fairly tight with the unemployment rate averaging 4.3 percent — the average annual unemployment rate since 1948 has been 5.67 percent — amid the continuing Baby Boomer retirement wave and shrinking migration. The combination of labor markets still tight on a postwar basis and shrinking inflation did the work of boosting incomes on a real basis.
But looking forward, 2026 may see a slight reversal of some of those trends. While seasonally adjusted average weekly earnings nominally increased 3.4 percent from December 2024 to December 2025 and consumer prices only grew by 2.6 percent, so far in 2026, with eight months on the books, average weekly earnings are up 2.6 percent so far, while seasonally adjusted consumer prices have already jumped 2.5 percent amid rising energy costs as global supply chains are destabilized out of Ukraine, Russia and the Middle East.
While there is still time left in the year for a reversal of prices — June and July showed what that could look like as the U.S. and Iran were drafting their memorandum of understanding — its rapid violation as Iran began firing on oil tankers and other oil and gas infrastructure in the region have thrown that somewhat into doubt even as President Donald Trump predicted the war in Iran would end soon after the Congressional midterm elections.
Speaking at the United Nations General Assembly on Sept. 22, President Trump stated, “I believe we’ll make a deal right after the election, because it doesn’t make sense for them not to.”
Trump explained: “They’re waiting to see how I do in the midterm election. What they don’t realize is that I’m not running… The Republican Party is running and I’ll be helping them, but I am not running. I gave absolutely no credence and will not give credence to the election. When it comes to Iran, it doesn’t even enter my mind. The only thing that does is that Iran will never have a nuclear weapon.”
But that “one way or another” the President said the war would end: “We will get it done one way or the other. It’s going to be done. It’s going to be done fast.”
If so, again, the cessation of hostilities in the late spring and early summer did show that prices had a propensity to come down very fast indeed. And when they do, American households will benefit, who will certainly be watching gas prices but the better measure remains the gap between earnings and inflation that was narrowing since 2022, spiked again in 2026 but is again dropping.
Eventually, we’ll break even on the post-Covid inflation. The question is will it be before 2028? We were on track to break even by December 2026, now, assuming prices go back to the way they were before March, break-even might be by October 2027. Everyone’s focused on the midterms, but the real target is 2028.
Once incomes get ahead of inflation, people will be feeling a lot better. The question will be “Are we better off?” On that count, in January 2025, the gap between inflation and income growth since December 2020 forward was 4.3 percent more inflation than earnings growth, and by February 2026 that was down to 2.15 percent. It spiked to 3.9 percent in May 2026, and now is back down to 2.75 percent in August.
So, disinflation has resumed, but appears dependent on getting global supply chains fully open. We need to break even and start getting wealthy again. It’s critical. Trump ran on getting prices down in 2024. It’s why he won. If incomes stay ahead of inflation, then we’re getting wealthier and the politics will usually take care of itself.
Historically, when it doesn’t, that is, when inflation outpaced incomes during the incumbent’s term, you get 1976, 1980, 1992, 2008 and 2024: The incumbents lose. 4 out of 5 of those were one-term presidents. One exception was Obama in 2012 following the Libya war oil spike. He’s the only one who escaped.
So, there’s a real incentive to keep those numbers right-side up. It’s worth noting every one of those episodes in part had pressure on oil prices from wars overseas. Inflation regardless of the cause destabilizes incumbents. Security before politics. As the President stated, Iran cannot have a nuclear weapon. But there might be a price.
Robert Romano is the Executive Director of Americans for Limited Government Foundation.
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